This is a guest post by Liz Parsons more details at the end of this post
Don’t let unpaid invoices cripple your business
Having provided goods or a service to a customer, you’d think that getting paid would be the most logical thing to happen next. Sadly this isn’t always the case, and each year small businesses struggle to get the money they are owed – causing huge problems with paying for materials, future planning and ensuring staff get their wages.
This is a bigger issue than many people realise. Although this is a problem throughout the world, in Australia, research has estimated that an average small business is owned up to $13,200 in unpaid invoices.
However, there are ways in which you can approach business to ensure that unpaid invoices don’t cripple your business. Here are just some of them…
Ensure that there are consequences for late or non-payments
For a small business, it can be difficult to find the balance between wanting to chase to ensure that you get paid, but also not wanting to drive your customers away by harassing them. However, if a customer is not paying you, then perhaps they are not the type of customer that you want. As a business, you need to be firm in your belief that you deserve to be paid, and you should do all you can to make sure this happens. One way to encourage prompt payment is to have consequences for late payment, such as adding on an interest charge for each day over the invoice due date. We recommend using the Reserve Bank of Australia’s base rate (1.5% at time of writing) to set a daily amount which will be added onto the total bill until payment is made.
Find out as much as you can before you agree to do business with someone
This can be dependent on what sort of industry your small business sits in, but if it’s possible to find out more about your customers before agreeing to work with them then do so. Try to find out if they have a good reputation, or if there have been any concerns raised about them in the past. Also, depending on the size of their business, look to see if they have a finance department or at least a person dedicated to paying the bills. This can indicate if they are formal in their approach to invoices, or if it’s all a bit ad hoc which can lead to missed payments. If alarm bells ring when you do your research then consider if this is the type of customer you want, particularly if there is a risk they won’t pay at all.
Put in measures to help when selling to overseas customers
Selling overseas has many challenges, including ensuring that you get paid. The lag between the time it takes for someone to receive the goods if they don’t live in Australia naturally adds to the time you can expect to get paid, so if an invoice is then late it can cause some real problems. If your business buys and sells goods overseas, then you may wish to consider using trade finance. This is a way of taking out a loan which can act as a bridge helping you to pay for the goods, while waiting to be paid by your customer.
Don’t give up
Chasing payments can be a thankless task and one which, as a small business owner, you might think you simply don’t have time for – but it’s important to not give up. You’ve done your job, so you have every right to be paid. Ensure that you chase as soon as the invoice is overdue, and then chase again every week after that. Set yourself a time limit, say eight weeks, after which time you will go further – contacting a debt recovery agency to seek the money you are owed.
Cashflow, Profit and the 7 Big Questions of Small Business
Business owners frequently ask 7 Big Questions about how to Build a Beautiful Business and Life.
The second of the 7 Big Questions is: How do I make more money in my business?
To answer the second question, I have identified the “7 Rules for making more Profit in business.”
The fourth Rule is the old maxim: Cashflow is King. This is one of many more articles on this site that explain how Cash and Profit hang together, in some depth.
Unpaid invoices are more of a problem than most people realise. If unchecked, these can lead to financial loss, redundancies, or even bankruptcy. To discuss the issue, Liz Parsons – working with World First – states how to prevent these from occurring.