An astounding 60% of small to medium sized Australian businesses cease to operate within the first few years due to poor cash flow.
Poor cash flow is a problem every business needs to avoid at all costs and when you don’t have the money on hand your business will struggle to pay for the things that keep your business operational.
In this article, we’ll explore the impact of poor cash flow on business owners as well as advice on how to get your invoices paid faster and avoid late payments.
What is the impact of receiving late payments?
- 77% (which is more than 3/4) of Australian small- to medium-sized businesses say they have been negatively impacted by their customers not paying on time
- 52% said delayed payments significantly increased their stress and anxiety levels
- 35% say their personal finances were affected
- 32% said not getting paid on time had impacted their ability to cover operational expenses
This growing issue can have a domino effect of cascading problems such as:
- Making it difficult to service your own customers
- Staff morale
- Making accurate forecasts
- Stunting business growth
- Negatively impacting health and wellbeing
5 tips to help prevent late payments:
- Clearly define your payment terms
Outline your payment terms at the start of the relationship so the customer completely understands your payment procedures and is aware of the consequences to not paying on time i.e. late fees – this is about expectation setting from the onset.
- Invoice straight away
Customers are more inclined to pay when they’ve just received their goods or services so ensure you invoice straight away. Make your invoices clear – right description, clear due date and any other important information.
- Incentivise early payment
If you charge late payment fees make sure it’s clear on your invoice i.e. “Late payment fees are assessed after the due date at a rate of xx per month.”
Or you can try a more positive approach by incentivising early payment for example: “Total due: $2,000. Save 5% if paid by 30th Aug: $1,900
- Make it easy to pay you
Customers will pay faster if you provide their preferred payment method so offer a variety of methods. Research shows that you’ll get paid up to 10 days sooner if you offer options such a credit card or PayPal.
- Chase payments
Just because you’ve sent an invoice and clearly outlined your payment terms doesn’t mean your job is done. You’ll need to keep track of these invoices. Utilising account software such as Xero allows you to see when invoices have been viewed and or paid. If the due date is approaching and the invoice has still not been paid you can set up your software to automatically send out reminders.
You’ll want to have a robust procedure in place to avoid bad debtor issues – see “5 Great Tips To Avoid Debtor Issues To Keep Cash Flowing”
Cash flow is king is any type of business and is the indicator that shows the overall health of your business in both the present and the future. Making tiny tweaks to your policies and procedures can mean the difference to your business’ success allowing you to continue to work smarter not harder.