Yesterday Kate Carnell, the Small Business and Family Enterprise Ombudsman, took on the fight against late payments for small business.
“Currently, there’s billions of dollars owing to small businesses as a result of outstanding invoices. This money needs to be freed-up so mum-and-dad operators can get on with the job of simply running their small business,” Carnell said at the launch of the Victorian Small Business Festival.
This is fantastic news as late payments is major problem for small business. Australian small business are collectively owed $26 billion – that’s around $13,000 each. Small businesses are spending 3.9 million working weeks – at a total cost of $13 billion – chasing these late payments each year.
Bringing it down to the coal face, 21% of small business risk closure if faced with a late payment. That means the average small business is wasting 83 hours – over two working weeks – chasing payments and at constant risk of closing down. This places a huge stress and strain, not only on their bank accounts but their mental health, relationships and family.
Small business owners are a passionate lot – passionate about their product, their customers and how they how run their business. Many do it because they feel a calling to create, to break the status quo and add value to our world. But let’s be honest, if you aren’t getting paid on time – you’re in trouble. This list of tips to help you eliminate late payments (I’ve left out ‘have a contract’, as you already know that one).
1. Invoice payment upfront or in escrow
You’ll see this at the top of every ‘get paid on time’ list on the internet. Payment upfront is the ideal situation for any small business. There’s one small problem though – not many customers like it.
An alternative is escrow. This is when payment is held by an independent party until the job is done. Traditionally complex, escrow is becoming more common and accessible with the rise of fintech startups.
2. Offer payment choices
The more choices your customers have and the easier it is to pay, the more likely you will get paid on time. You probably already accept cash and direct deposit. Adding credit card, debit card or eftpos can really level the playing field with the big boys.
3. Chase the money
Make sure you stick to your terms! If you don’t respect your own terms, why should your customers? If your terms are 30 days and you haven’t be paid at the end of day 30, call them. If they are have left the office, leave a polite message and follow up the next day. If they can’t pay immediately, get a date that they will pay. Remember, the squeaky wheel gets the oil.
4. Track outstanding invoices with accounting software
Cloud-based or not, accounting software can help you keep track of upcoming and outstanding payments, making it easy for you to keep on top of your invoices and get payment on time.
5. Consider offering an early bird discount
No-one likes a late fee but everyone loves a discount. Consider offering a ‘discount’ for on time invoice payment, say 5%, if payment is made before the due date. In reality this is a late surcharge that is removed when the invoice is paid on time.
Luke Hally is the chief executive of DragonBill.