The real reason your debtors pay their invoices late
If you go by the statistics, it’s a stunningly common problem: 115 million small businesses worldwide say they are struggling with the complexity and stress of managing delayed receivables.
According to UK financial organisation London and Zurich, one third of UK SMEs surveyed in 2014 said they were spending more than £500 a month just in handling late payments:
“Those affected can be teetering dangerously close to the edge. Among the 60% of businesses affected by late payments, £38,000 is the average outstanding amount they are owed. A quarter of these businesses admitted that if their late payment figure hit £50,000, they’d be looking at bankruptcy.”
So what’s the hold up?
Let’s have a look at the most common reasons SMBs pay their bills late. According to the latest figures, small businesses are most often behind in settling their accounts because of:
A lack of cash – They couldn’t afford to pay (44%)
The invoice due date was not aligned with the day they usually pay their bills (36%)
Lack of time – They were too busy (34%)
The invoice had no payment instructions (32%)
The invoice was sent to the wrong person or email address (26%)
The invoice items or amount was incorrect (25%)
They lost the invoice (19%)
There’s a reason why ‘lack of cash’ tops the list. Cash flow is often a ‘make or break’ issue for small businesses. When SMEs are made to wait too long for payment, they can be left unable to pay their own suppliers. Both the commonality of the problem and the cause are the products of this knock-on effect, as late payment problems travel up the creditor food chain.
And it’s not just the threat of insolvency. Unpaid invoices cost businesses in a host of other ways, including:
Time wasted, often the time of the business owner
Late fees/interest
The effect on credit and reputation
Strained relationships with clients
The cost of employing credit controllers and debt collectors
Legal costs
And the costs associated with using overdrafts and credit cards
So just how much are delayed receivables costing you? Probably more than you think. Use this financial impact calculator to see the actual impact that just a single day has on how much you have invested in receivables.
Luckily, there are simple ways to reduce these costs. First, invoice as soon as the job is done by streamlining your invoice processes internally and using automated rather than manual invoicing.
Second (and most crucially), ensure that the invoice actually gets paid. Of course, your invoices will sometimes be ‘misplaced’, ‘forgotten’ or ignored, so set up an automated invoice reminder system to ensure you’re using best practice, and following up on outstanding invoices in an efficient and effective way.
Original Article https://debtordaddy.com/2016/06/30/wheres-my-money-man-the-real-reason-your-debtors-pay-their-invoices-late/
