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Ventureburn recently caught up with Xero’s Gary Turner, so we got the chance to speak about one of the underlying threats to small businesses — late payments.
“One of the biggest threats small businesses face is getting money through the door, I’m sure that it won’t always be the problem. We did some research to see how that plays out versus any of the other countries. The bad news is that it’s just as bad here as it is everywhere else,” said Turner.
Their research was conducted through Frontline and looked at 500 businesses across SA (to represent local figures only). What they found was that the general behaviour around cash flow regarding late payments was also a problem.
The worst region with regards to performance and time took about one and a half days a month to receive any payments. This problem also varied across industries, with healthcare taking up to 2.6 days to receive payment.
“Whether it’s a day and a half, two days or two and a half days… that means every 10 days is equivalent to a person stopping what they’re doing and spending an entire day just trying to get money in the door,” said Turner.
Late payments are a major problem for small businesses, according to Turner
Turner also mentioned that more than 20% of respondents attributed their late payments to the fact that the person that was supposed to pay the invoice was disorganised.
So how then could you remedy this? You make it easier for them to pay you, according to Turner.
“The time to bill is my problem, you’re… almost all of a sudden adding a delay to getting the money in because you haven’t raised the invoice yet… and it could be days or weeks if I’m really just disorganised,” he said.
“If customers consistently pay late, shorten the payment period on any invoices you issue — even to one or two weeks. Even if customers still pay a week or two late, you’ll have more breathing room than you would have otherwise,” stated the company in a blog post.
Another possible remedy is to manage your client relationships a lot better. By using technology, you’re able to automate the payment process as well as set reminders to your customers of their payments via SMS or email.
“Xero’s cloud accounting software also lets you include a ‘Pay Now’ button alongside any invoice you issue. Making contact with their accounts department can also help, as a friendly relationship with a customer’s finance team can make a significant difference,” stated Xero.
More importantly, you could also set your terms of payment. Without properly setting up strict terms and conditions, you could be causing your own payment issues.
“An obvious one is to set realistic, cash-flow-friendly credit terms. If you have to pay a supplier’s invoice in 30 days, but provide 60 day payment periods to your customers, you’ve created an immediate financial gap for your company. Make sure your payment terms are set up to avoid problems,” stated Xero.
So, the three main issues regarding late payments are disorganisation, cash flow management and taking responsibility for making payments easier. All of these aspects, according to Turner, could be mitigated using their accounting software and proper management.