Business owners and late payments is not a new story. For years, SMEs have struggled to get their clients and customers to pay on time.
Late payments can be detrimental to business and can even lead a company to shut down. But with the latest online invoicing software for enterprises available, the late payment culture is finally coming to an end.
Today, we’ll discuss the culture of late payments, how it affects businesses, and how to combat it efficiently.
The Culture of Late Payments
Late payments have always been a common issue in B2B transactions. And with COVID-19 crippling economies across the globe, businesses are under immense liquidity pressures.
Overdue payments in North America have increased exponentially over the past year – 25% from 2019 to 43% in 2020. This includes the US, Canada, and Mexico, showed a report by Global Trade.
The late payment culture is more deficient in the Asia Pacific region. India ranks the worst on the list of most delayed payments, with the effect being the most profound in government payments.
The excuses for late payments can vary. Some companies may call it a cash flow issue; some may point out problems in your goods and services. But the most common cause of late payments is the misunderstanding of the bill. Or, simply put, invoice issues. Most MSMEs lack a recurring billing and invoice system, which leads to mistakes and inaccuracies in the invoice.
How it Affects Businesses?
Accepting a few late payments here and there may seem like no big deal. And it isn’t. Maybe your client had cash flow issues. Sometimes, it’s essential to allow late payments to maintain meaningful business relationships.
The problem, however, arises when it turns into a culture. If most of your clients pay late, you can run into a wide range of business issues, such as:
1. Inability to Take New Work
Here’s how a typical business cycle works. You complete a project and get paid. Then you take a new project and utilize the money earned from the previous project to get the work done. But when you don’t get paid on time, you might experience limited cash flow, which could hinder your ability to take up new projects.
2. Inability to Pay Operational Expenses
Every company has operational expenses. This includes the costs of labor, electricity, and resources. Since late payments affect cash flow, you may struggle to meet your administration costs.
3. Inability to Pay to Your Suppliers
If you’re a product-based business, you likely rely on suppliers for raw materials. Late payments can also affect your ability to pay your suppliers, which might impact your relationship with them.
4. Bad Credit Rating
Small businesses and startups mostly have loans and due credit card bills. When your customers don’t pay you on time, you won’t be able to clear your loans and credit card bills in a timely manner. This will adversely affect your company’s credit rating, impeding your ability to avail of loans and other financial benefits in the future.
5. Business Shut Down
In the worst-case scenario, late payments can even cause your business to shut down. With no cash in hand, you won’t be able to pay your suppliers, run your operations, and pay off your due bills. You’ll no longer be able to run your company and will eventually be forced to shut it down.
From knowing your customers to using online invoicing software for enterprises, there are several ways to combat late payments. The following section talks about some actionable ways to encourage your consumers to pay on time.
How to Combat Late Payments?
As discussed, a majority of late payments boil down to inaccurate invoice creation and management. However, some financial and emotional hurdles may also arise.
Here are some effective ways to ensure timely payments from your consumers.
1. Understand Your Customer
In such times of crisis, companies are not in a place to be selective. They just want to grab any business opportunity they can get. This is an incorrect approach.
No matter how desperate you are to get business, do some research about every client you add to your list. Perform a credit check and see if they have a history of making late payments. It’s wise to lose a client than working with someone who doesn’t pay on time.
2. Clarify Payment Terms
Your clients need to be crystal clear about your payment policy. Mention all the necessary details, like due date, accepted payment methods, and late payment fees (if any). Simplify it as much as possible, so your clients don’t have a hard time figuring out how to pay you. You can use Moon Invoice, the best Android invoice app, to streamline and simplify your invoices.
3. Offer Multiple Payment Modes
If you only accept cash or check, you might end up waiting for days before someone shows up flailing those papers. We’re living in a digital era, where making and accepting payments is much easier. Offer your clients different payment methods, such as cards, online banking, and mobile payments.
4. Incentivize for Paying Early
People love incentives, even if they’re as small as giving a 2% discount on the next transaction. Offer your clients incentives for paying early. It can be in the form of a discount, credit, add-on, freebie, or anything of value. But regardless of what you offer, make sure to clearly mention in the payment terms on your invoice.
5. Use Digital Invoicing Solutions
If you’re still using cash registers, you’re inviting late payments. Manual billing and invoicing operations increase the risk of errors. And a report from Commercial Domestic Investigations showed that 26% of late payments are due to incorrect invoices.
To avoid invoicing errors, implement a recurring billing and invoice system. These solutions automate your billing and invoicing process, allowing you to create accurate invoices in the minimum time.
Late payments can occur once in a while. If so, politely follow-up with your consumers and remind them that the due date has passed.
But not getting paid on time month after month can deteriorate your business’ performance. Therefore, it’s crucial to have the best Android invoice app like Moon Invoice to make your invoice and billing operations faster and more accurate.