Despite recent improvements in the average time taken to settle invoices for Australian startups, late payments and cash flow are two issues still causing headaches at this time of year.
The latest Trade Payments Analysis from Dun & Bradstreet shows businesses are waiting an average of 51.7 days for payment – even though this is the shortest wait since 2007, it is still a long time for small businesses to sweat on being paid.
Slow payments not only impact on a startup’s ability to pay suppliers on time, it also reduces their ability to grow.
Here are five steps startups can take to smooth payments, the first requires time and research, while the others are relatively simply but can reap major benefits.
1. Ensure you’re financing your business in the most effective way
With factoring, or debtor finance, facility limits are based on accounts receivable balances, so the amount of cash available grows in line with sales, providing ongoing access to the funds required to complete the next order, without having to wait 30 days or more for customers’ payments. Most factoring facilities do not require real estate security so there is no need to use the family home to secure the borrowing facilities required to run your business effectively.
2. Be methodical and time-sensitive when raising invoices
We recommend to clients that they issue the invoice as soon as the job is done or goods are despatched. Don’t wait until the end of the month.
3. Make invoices easy to pay
Make sure invoices include all relevant details, such as the customer order reference, the date payment is due, your bank details, who to contact if there is a query and a full description of the goods or services provided.
4. Ensure you credit check potential and existing customers
There’s no profit in a sale unless you get paid (and paid on time) and the best way to ensure this happens is to run regular credit checks – at least every few months.
5. Separate sales from debt collection
Make sure those responsible for any sales are not responsible for collecting payment. Have two distinct roles within your organisation where responsibilities are clear.
Greg Charlwood is general manager of national startup and SME financier, FactorONE.