Business insolvencies in Australia are on the rise. Expert commentators have expressed that this trend is largely a result of that cash flow problems that stem from a ballooning late payment epidemic that’s sweeping the country’s businesses. In Australia, a whopping 60 per cent of invoices are paid late – with the average length of time for payment being 53 days. If this is happening in your organisation, you are effectively giving an interest-free loan to your customers while your organisation is left to cope with the challenges of having less cash on hand to handle day-to-day expenses. Moreover, the additional costs of not having cash available to take advantage of business growth opportunities as they arise is harder to quantify – but it is there.
Now is the time to implement the right strategies for your organisation to protect against late payments and the cash flow challenges they cause.
Our experts’ top strategies to getting paid on time
1. Automate as many payments as possible
Our number one recommendation to the financial controllers who contact us looking for ways to get paid on time is to automate as many inbound payments as possible. The best automated payments software providers offer seamless integration into the other business management software that you use in your organisation to deliver value in two ways:
firstly through reducing the amount of time and money your organisation spends on manually processing payments from customers and chasing late payers, and
secondly by transferring cash into your account on the day that it’s due – therefore improving your cash position on any given day throughout your financial cycle, freeing up additional cash reserves and significantly reducing the risk of late payers and non-payers.
2. Review your payment terms
Do you invoice your customers before or after you have fulfilled their order? Consider whether you could tweak your payment terms to facilitate earlier invoicing for services rendered and stop your custom of temporarily footing the bill for your customers’ orders while you wait to get paid.
3. Implement incentives to pay on time
Implementing incentives to pay on time can work very well in some industries, particularly those that provide regular services (such as telecommunications) that could be suspended if bills aren’t paid on time. However, depending on the industry in which you operate and the types of customers you deal with, we urge you to exercise caution when considering your options for penalties for late payments. Consider whether the benefits outweigh the risks and always strive to keep your corporate reputation intact. Rather than imposing penalties for late payments, you may prefer to reward good behaviour through offering a discount for invoices that are paid on time.
4. Follow up early and often
Don’t be afraid to make that phone call on the day after your payment was due. Rather than asking, ‘When will you pay up?, we recommend you ask, ‘Is there any reason this bill has not been paid?’ This is a simple action that can motivate your customers to pay up fast.
5. Say no
If you think a customer will be a late payer or avoid payment altogether simply don’t do business with them. A sale isn’t a sale until you’ve been paid. You have the right to pass on the business.