Though it may feel as if it is only happening to you, late invoice payments affect just about 9 out of 10 small businesses. Indeed, SMEs spend a considerable amount of time in chasing the invoices delivered every month with over 50% of the invoices normally paid late.
Late invoice payments affect your business in a number of ways:
- Lower productivity.
- Hinder your ability to invest in opportunities.
- Increase the need to borrow funds.
- Late supplier payments.
- Has a negative effect on business relations.
- Payroll management problems.
- Stunt business growth.
- Risk credit score.
- Increase stress.
Get the idea? Suppose you already know it, why do small businesses struggle with late invoice payments?
You are not the scary monster
Clients, whether they are large corporations, SMEs or individual customers tend to pay the big players first because they perceive them as scary. Perhaps not in the sense of a horror movie or monster, but since the larger companies most probably have good lawyers and debt collectors, tax consultants and the likes, clients usually end up paying them first.
Your personal approach makes you a friend and not a creditor
You come off as the small guy and you most probably also have a more personal approach to client service. That personal relationship building technique is good, but it also comes with a price since your clients see you as approachable when it comes to excuses for non-payment. They also figure that you most probably won’t take immediate legal action.
Clients don’t expect you to enforce penalties for late invoice payments or even non-payments, so they pay the creditors who are likely to add their names to ITC first.
You do the job before you have a written agreement
Since you are so friendly and believe in long-term relationships, many of your contracts have been verbal, based on goodwill rather than written and signed agreements. And with nothing on paper, your clients also know that you will have a hard time in proving that they owe you money.
You lack an accounting division
Nobody blames you – after all if you are only about three or four persons in the company why dedicate an entire role to accounting? Without the accounts department or at least outsourcing the function, you have to keep track of all the invoices. A busy schedule means many clients and invoices are forgotten and you don’t get around to sending invoices in time.
You lack the time
There are just so many things one person can do in a 24 hour period. Chasing after every unpaid invoice takes time and you don’t have it. Indeed, some days it may feel as if you don’t even have time to get to every client.
What is the solution – is there one?
Stop taking late and non-payment of invoices as a given part of doing business. Companies get paid on time everywhere. And you just need to follow the same principles to become part of the group that receives payments on time. Don’t worry. You will mostly need to make small changes – nothing big such as getting the mafia to follow up on payments.
We provide a full range of tax, bookkeeping, cloud accounting, and app solutions for small and medium businesses in South Africa. Get in touch right away or read how to get invoice payments on time and find out how our turn-key cloud accounting services can help you reduce the time between invoicing and getting paid.