How to Handle Unpaid Invoices from Clients Who Pay Late
Small businesses can only deal with so much when it comes to overdue or unpaid invoices owed by slow-paying clients. We examine how to best handle these clients and the financial struggle they cause.
How Late Payments Can Impact Your Business
The bitter reality is that large businesses tend to relegate small businesses to the bottom of the stack when it comes to paying invoices. If you own a small business you understand the negative impact this can have on your ability to run your business. This can cause trouble in making payroll, paying your rent and maintaining your vehicles and equipment. Unpaid and overdue invoices can keep you from growing your business. The challenge lies in generating enough cash flow to keep the doors open. Here are a number of ways to help you handle the problem of late payments:
The Scope of the Problem
An Australian study conducted in 2015 examined 30,000 invoices generated out of 80 different countries. Out of a total of 19 countries participating in the survey, Australian companies fell last in terms of being paid on time. Invoices from Australian companies were being paid an average of 26.4 days late. The standard time for paying invoices is 30 days, which tells us that many Australian companies are waiting nearly two months to be paid.
Results of the Study
- Australian companies on average were getting their invoices paid 26.4 days late
- 90% of small businesses are forced to close their doors due to cash flow problems
- Small businesses in Australia have $26,000,000 owed to them in unpaid invoices
How Small Business Owners can Minimise the Problem of Late Payments
Here are some tried and true strategies that business owners can incorporate into their practices and procedures to minimise the frequency of late payments:
- Whenever you can, negotiate for a partial payment upfront of at least 50%. For example, a florist can set a policy whereby they are paid 50% of the cost of the arrangements when the order is placed, with final payment being made on delivery.
- From the very beginning, state clearly that you have a late payment fee schedule. Your terms could be an additional 3% penalty after 30 days, and 4% if the invoice is paid more than 60 days late.
- No matter how awkward it feels you must bring up your invoicing practices and late payment penalties upfront. This is especially important if you are freelancing and you are talking to a big multinational corporation. Be open about the terms ahead of time.
Establish Set Policies & Procedures for Overdue Payments
When you establish a system for handling late payments you have better luck getting paid. For example, you need to make a practice of acting promptly when an invoice is overdue, even for a day. The process should be automatic and with software like MYOB, Xero or Reckon, you can easily carry this out.
How To Handle Clients who Repeatedly Pay Late
Stay on friendly terms while having a professional conversation with them upfront about how their late payments are adversely affecting your business. Go into detail how this can cause cash flow problems that could ultimately jeopardise your business. Finally, suggest that you sit down together to determine how things are going to work going forward.
If you’re looking for some funds to tide you over between invoices Unsecured Finance Australia can help with a unsecured business loan, have a chat with our team today.