In today’s digital world, technology has made it easy for customers to pay for purchases almost instantly; but for some SMBs (small and medium businesses), late payments provide a frustrating experience.
Businesses rely on a steady flow of cash to build a profitable and sustainable business. If payments are late, financial hardship and administrative strain are among the unfortunate results that can transpire. Payments that are tardy or don’t arrive at all – aptly called “bad debt” – can have a negative impact on SMBs who rely on these funds to run their daily operations, pay staff and support the continued growth of their business. I’d like to discuss the impact late payments has on SMBs and share a few strategies to help you get paid both consistently and on time for your work.
The Cost of Late Payments
According to a recent economic report published by Sage, which surveyed over 3,000 SMBs in 11 countries, the bill for late payments worldwide tallies up to US$3 trillion. In Canada, 1 in 10 invoices are paid late, and SMBs here spend an average of seven days chasing late payments—costing businesses more than CDN$5,000. The Sage report also found that 40% of Canadian SMBs experience direct negative effects due to late payments, with eight percent of payments either never being paid at all or being paid so late that businesses are forced to write them off. This can be detrimental to SMBs.
However, businesses should not despair. The Sage report was instrumental in helping illuminate the barriers that SMBs experience when chasing late payments, making way for governments and larger businesses to align on digitization efforts and work together to improve productivity around the world. At Sage, we believe digitization paves the way for a more efficient and streamlined experience that benefits both customers and SMBs. In Canada, more than one-third of SMBs say they don’t chase outstanding payments because they value preserving client relationships, and some organizations even lack a dedicated resource (13%) for chasing late payments. SMBs can be advocates for mandated digitization by bringing awareness to late payments and vocalizing the issue through written letters and calls to government officials for action. In the meantime, here are a few strategies SMBs can implement to ensure they get paid on time without impacting highly-valued customer relationships:
Establish Payment Terms at the Onset
The Sage survey reveals the most common reason for delaying payments is because the transaction is pending or there was no reason given at all (34%). There could be a significant improvement in timely payments if SMBs tightened up payment termsfrom the beginning. Late payers are likely to be aware of the situation they cause and may be willing to pay you quicker if it is a requirement for service. This allows you to manage your customer’s expectations and gives them the opportunity to schedule their payment in advance.
Develop the Right Relationships and Keep Communication Open
Foster relationships with invoice recipients and make sure invoices are delivered to the person responsible for making payments. Better relationships mean more effective communication, which is important when it comes to getting an invoice paid!
Discover the Amazing Benefits of Automation
Automatic and digital payment methods such as direct debit and e-invoicing can make payments as simple as one click for your customers and effectively eliminate one of the biggest obstacles to getting paid on time. Digital payments that automatically reflect in your bank account can also give you more visibility and control of your cash flow. Since those types of payments are more reliable and easily tracked, you can better forecast what funds you’ll have available throughout the year, giving you the agility to adjust as needed.
At Sage, we are passionate about supporting business builders. We encourage SMBs to try these tips so can they spend less time on admin work and more time doing what they love! The sky is the limit – don’t make late payments stop you from chasing your dreams.