If you are doing business in Australia, there is one major nightmare you would be suffering from – unpaid invoices!! According to Xero, a company offering cloud-based solutions to small and medium enterprises, a whopping 47% of invoices are not paid on time, and the average delay for unpaid invoices is 30 days!
The Australian Securities and Investments Commission puts the figure of business failures at 40%! The failures result from poor cash flow due to unpaid invoices.
The delays are the longest in January, and hence, the best time to resolve this issue, to improve your cash flows and prevent business failures due to late payments, would be EOY or end of year.
Here are some effective methods you can use to keep unpaid invoices to the minimum at EOY.
Strategies for Prevention of Late Payments
The best way to deal with unpaid invoices is ensuring they don’t occur in the first place! You need to take care, however, not to put your relationships with your customers at risk or lose a customer in the process.
The following strategies could be used for minimising unpaid invoices:
Negotiate Upfront Payment
The best way to ensure the non-occurrence of unpaid invoices would be negotiating advance payment. This is a common practice in the construction industry, where the client has to make a staged upfront payment.
Offer an Incentive to Pay Early
A discount means savings, and whether it is a huge one or something as little as 5%, every customer loves to save. Use this strategy to incentivise your customers to make payment before the due date.
While incentives like discounts work to ensure faster payments, a disincentive, like a delayed payment penalty, also works wonders! Customers would not like to shell out extra cash, that would impact their profits, right? Therefore, this should be incorporated into the business contract.
Offer Easy Payment Options
It is possible that due to time constraints or the absence of a dedicated accounting department, invoices are not paid on time. In such cases, if you offer multiple payment options to the customers, like a credit card, PayPal, BPAY or mobile payments, chances are, you will get your payments on time.
Ensure clarity in terms of payment
When you enter into an agreement with a customer for providing goods or services, it is important that there is no ambiguity when it comes to payment terms. If you want the payment terms to be 15 days, mention it in the agreement or quotation, such that in the event of nonpayment, a penalty will be charged.
Use an Appropriate Accounting Software
You will be able to generate invoices on time and also track payments with the latest accounting software, that is suitable for your business. With the prompt generation of invoices, you can followup with the customers faster and ensure payments are made on time. This will streamline your accounts receivable process and ensure unpaid invoices are kept in check.
Ways to Handle Late Payers
While the above strategies would work for most of your customers, there still will be some customers who will continue to be late payers.
Though negotiations with such customers are never easy, you will have to devise strategies to deal with them to ensure that your business is not affected due to cash flow issues.
Some of the strategies you can employ to deal with customers who delay their payments are:
Communication and negotiation
Lapses in communication could be a major reason for not receiving payments for invoices on time. You need to follow up with the client and set up meetings to negotiate and discuss the unpaid invoices. Understanding the client’s payment process is also important to ensure that the payment protocol is being followed.
Creating a Plan B
It is possible that your client has some problems with cash flow. You could determine the exact nature of the financial difficulties faced by the client and suggest an instalment plan to clear the unpaid invoices.
Cash flow loan
If your business is having a cash flow crisis due to unpaid invoices, then small business loans are a viable option you can suggest to your clients. There are companies like Hubbe that provide business loans in Australia and help companies tide over a temporary cash crunch due to wage payments or employment of seasonal staff for Christmas.
Business Loans Made Easy with Hubbe
Unpaid invoices cause major financial difficulties to businesses and clients may have cash flow problems which lead to delays in payment. Thankfully, apart from negotiating with the client, you can also refer them to companies like Hubbe, which specialises in alternative lending. They don’t require collateral; they just require the bank’s statement for the past six months. Funds are provided within 24 hours. Repayments are scheduled according to the requirements of the client.
With business loans from Hubbe, your clients won’t have any more cash flow concerns and your invoices will be paid on time!