The biggest burden for many small businesses is not high taxes but unpaid invoices. It ties up billions of dollars that could form a vital cash flow for many businesses. According to an article on ABC Online, unpaid invoices are costing the Australian economy an estimated $76 billion. The more than 2 million small businesses in Australia have an average of $38,000 in unpaid invoices and many businesses have even closed shop as a result.
Late payment of invoices seems to be a characteristically Aussie corporate business culture. An article on Anthill Magazine ranks Australia as the “worst” country for invoice payments with many Australian businesses paying invoices more than a month late on average.
Late invoice payments or a default on payments places a huge burden on many small businesses that need the cash flow to stay afloat. The billions of dollars tied up in unpaid invoices are putting many small businesses under a heavy financial strain. It has been described as a kind of “corporate selfishness” that is permeating every stratum of Australian business culture. To their credit and not surprisingly, Australian accountants are the quickest when it comes to invoice payments with many paying invoices within 7.6 days on average.
Clients generally use all kinds of excuses to explain away their inability to make timely payments ranging from the standard “check in the mail” excuse to invoice “being processed offshore”.
Most of the time, a polite reminder will suffice in getting a client to pay up. However, if this doesn’t work, you can use various other strategies to ensure all your invoices are paid on time:-
The average Australian business spends 12 days in a year chasing invoices but less than 3 days in a year implementing proper accounting systems that are likely to increase the efficiency of payments and improve the cash flow.
Good organization helps you stay on top of your invoice payments. You will be able to easily track the invoices that need to be paid, outstanding invoices and those that are overdue. The best antidote to the disorganization and loss of invoices is to install a great invoicing system that automatically creates invoices and sends automatic reminders to clients. This will save you a lot of time that could have been wasted chasing invoices individually.
Keep tabs on your books
Late payment is a pervasive problem in the Australian business scene. Some 77% of Australian businesses grapple with late invoice payments. To keep tabs on your finances, spare some time every week to go through your books. Make it a routine and it will become an integral part of your business culture.
Even if you have already installed invoicing software that sends automatic reminders to your clients on overdue invoices, make a point of going through the invoices once a week in order to know where you stand financially. Every day that you wake up, you ought to have a good insight into your business finances. Besides, you can do an individual follow up with clients on some of the overdue invoices.
Send Your Clients Friendly Reminders
In some instances, a missed payment may just be a genuine oversight. A client may misplace or lose your invoices and sending them friendly reminders might pay off. The most efficient way to do this is by setting up automatic reminders in your bookkeeping system. These should be scheduled on the due date of the invoice and should be framed in a friendly tone. If an invoice is overdue, you can set up periodic automatic reminders that notify your clients to send payments. Sometimes, the phone might work the magic where the automated alerts fail.
Add a Personal Touch
Late invoice payments are quite frustrating for all businesses but sometimes you can get your clients to pay up by adding a little personal touch to your business dealings. Call them up and negotiate a different payment schedule that both of you would be comfortable with if they are unable to meet the payment obligations within the original deadline.
While emails, letters and accounting software notifications might get some clients to pay up, it may not always work with all clients. Sometimes, the good old phone will smooth up the way and prompt your clients to commit to a payment date. If they have not responded to a recent payment reminder, you can call and let them know you are just confirming they have received the invoices.
Usually, you will get a better response if you maintain a friendlier tone than a rude, angry or impatient one.
Get a little tough
In some cases, you simply have to get tough in order to get the client to pay up. There are usually some obvious warning signs that might indicate you are dealing with a difficult client:-
- The client is not returning phone calls or not responding to your email notifications.
- They make a lot of excuses
- They make plenty of promises that go unfulfilled.
- They keep asking for an extension of the due date.
- They prefer paying in cheque
- They have only sent you partial payments
- They ask you for a discount
If you have been grappling with all these and your relationship with the client is not so cordial, you can send the client a final warning letter. Also called the letter of demand, the final warning letter should be used if you have sent at least two reminders and you still haven’t received a payment or satisfactory response from your client. The purpose of the letter is to show the client that you are sending them a final notice before you take legal action. Never use this option if you are not prepared to take the legal route.
Hiring a Debt Collector
This is probably the most extreme step short of legal action that you may have to undertake to pursue payments for due invoices. However, it is always a costly option so you should carefully weigh the risks before you travel this route. Some businesses simply choose to write-off the bad debts.
Having a problem keeping tabs on your invoices? You can hire an accounting firm Melbourne professional that can help you manage your bookkeeping needs and ensure your invoices are paid on time.