Receiving payments on time is essential for any business to stay afloat and stay profitable. That’s particularly true of growing businesses, who may not have the capital or manpower of larger companies to recover debt and hold tardy customers to account. Yet in APAC, 44.5% of B2B invoices are reported overdue, particularly in Australia and New Zealand, where invoices are still paid 26 days late on average, with locally-based businesses ranked the worst in the world at paying their bills on time.
There’s no reason why someone else’s delays should compromise your business, so here are five useful tips that any growing business can employ to keep the cash flowing and their operations in good health.
SET THE RULES OF ENGAGEMENT
Set clear expectations for all parties involved in any transaction, whether with suppliers or customers. These terms may be verbally discussed, listed on a quote, or included in your contract before a piece of work commences – but there should be at least some written record of what everyone agrees on.
Make your payment terms clear, and include details like how you charge for services; how much of a deposit is required; any fees for late payments; or even the conditions under which an extension might apply. Getting the details sorted upfront will leave no room for confusion down the track, while also making it much easier to follow up on any missing payments in the future.
Business owners can find themselves short in time and manpower, but the effort of establishing an efficient process right from the start will quickly pay for itself. The goal: create a workflow which improves the efficiency of regular tasks like invoicing, tracking, reporting, and follow up.
The process could be something like: first invoice, a follow-up phone call, a reminder invoice with an extension date, a second reminder, a final reminder, and a notification of debt passed to an external collection agency. With the help of online technology such as cloud-based financial management solutions, growing businesses can also build an ecosystem that’s integrated with other functions like inventory, CRM and e-commerce to streamline their cash flow processes.
CREATE AN ECOSYSTEM THAT WORKS
LEVERAGE THE 'RECENCY EFFECT'
The quicker you send out your invoices, the sooner you’re likely to be paid. This is called the “recency effect”, a term used to describe the human tendency to remember things, experiences of gifts which have been given to them recently. Customers who have recently bought a brand’s products are most likely to buy the same product again – or other offerings by the brand.
In cash flow terms, sending an invoice out immediately after delivering the product or service is the best time to do so. That’s when the value of your work is still fresh in the customers’ minds – making them most receptive to paying. Most people tend to remember and act on tasks that are at front of mind; the sooner a client receives an invoice, the sooner they’ll add it to their next pay cycle.
A recent report revealed that B2B customers in the chemicals and construction sectors generated some of the longest payments delays, as domestic and foreign B2B customers in these sectors paid, on average, 31 and 27 days late respectively. Not all clients are the same, and understanding their different needs can help iron out the unique difficulties of working with each one. That often means offering different payment channels, including online methods like bank transfers, credit cards, and PayPal. It may also involve offering different options like early-payment incentives or adjusting credit terms to better suit a customer’s finance processes. Customers will pay faster if they can use their preferred method to hand over their money, in the least hassle-free manner.
OFFER DIFFERENT PAYMENT METHODS
INVEST IN TECHNOLOGY
Accounting software need not be complicated and expensive, and business owners would do well to find attractive options designed to meet both their budgets and needs – many which are cloud-based, automated,band affordable via monthly subscription fees.
In order to be scalable and accommodate for future growth, growing businesses need a cloud-based system which can do more than just accounting functions, but also cover inventory and CRM systems, to ensure that automated features can generate invoices automatically, send recurring invoices to existing customers, and issue alert emails. Technology like this can help keep track of purchase history and expenses to provide real-time visibility for key decision-makers and streamline the financial process.