Unpaid invoices have been a hot topic in the news recently. For most small businesses and SMEs in South Africa, late payments are an ongoing challenge. Often smaller contractors are the last in line to get paid.
Late payments can cause a devastating knock-on effect. Running costs can dry up, salaries don’t get paid, and the one affected most at the end of the day is the small business owner.
Unpaid invoices combined with difficulty accessing working capital finance by traditional means can spell the end of many businesses.
As a busy owner, you don’t want to be the ‘bad cop’ with your customers. Your focus should always be on managing your business and maintaining good relationships with your clients, suppliers and partners.
We’ve put together a list of options available to help you combat bad payment behaviour.
When the going gets tough, it’s time to get on the Cloud. There are a variety of automation solutions available to small businesses that don’t cost the earth. Easy-to-use online invoicing software like Xero, for example, makes it simple for customers to pay you faster. Try out the free trial to test if it’s a good fit for your business.
Automating your email and SMS reminders is another excellent way to keep you on the top of your debtors’ minds.
Hire a collection agent
Even if you can’t afford another full-time employee, consider hiring a half-day or even a freelance debt collections agent to manage your unpaid invoices. Often all that’s needed is a friendly phone call or email to remind customers that they have an outstanding invoice that needs attention. There are also a variety of agencies that offer debt collection services that might prove more affordable than taking on a dedicated staff member.
Early payment discount
It’s common practice these days to offer a small discount to incentivise customers to pay right away. This works especially well for businesses that offer same-day service or who deal with customers face-to-face.
Ask for a deposit upfront
The flip side of offering an early payment discount is asking for a deposit upfront. This ensures that no work gets done before payment is made, reducing the risk of no-shows, wasted work and most importantly, late payments.
Stricter payment terms
State your payment terms clearly on your invoice so that your customers know you expect full payment within seven days, thirty days, on the same day, or upon delivery. If your customer does not stick to these terms make it clear what the consequences of non-payment will be, whether it’s an interest charge or being handed over to a lawyer.
Make it easy to pay
Offer a variety of ways for your debtors to pay, whether it’s a credit card, debit card, Yoco, Eft or debit order. The easier and more convenient it is to pay you, the higher the likelihood will be of actually being paid.
Easy access to working capital can spell the difference between a good trading month and a disastrous one. Short-term finance can help bridge the gap in your cash flow while you wait for invoices to be honoured. Paying your finance back quickly ensures you don’t lose money to interest.