Getting late payments under control

Many NZ small businesses are finding late payment to be a major issue.

A recent survey from payment provider, GoCardless, found that 62% of New Zealand businesses believe they’re losing money to late payments – some even reporting estimated losses of over $10,000 per month, on average.

Let’s look at what late payment means for your cashflow and working capital, and what steps you can take to improve payment times and your overall cash position.

Why is late payment such a problem?

Your financial health as a small business depends on your ability to bring in stable income (revenue) and to keep your expenditure (costs) to a minimum.

If payment arrives on time, this boosts your cashflow, provides the working capital needed to operate the business and, hopefully, leaves enough surplus to deliver a profit.

When payment doesn’t arrive on time, this whole financial process breaks down, leaving you with no cash in the bank, outstanding debts to pay and dwindling capital resources.

The aim of your accounts receivable function is to collect payments from customers as quickly as possible. The sooner that income is received, the better, helping you stay in a positive cash flow position and access the liquid capital needed to trade, expand and innovate.

Here are four key ways to speed up the collection of payments:

1. Invoice on time using e-invoicing
   Use e-invoicing (electronic invoicing), and the automation tools in your accounting software, to generate and send invoices as soon as the job is complete. E-invoicing systems reduce potential human keying errors, are delivered instantly and can be integrated with payment portals for a faster, smoother and more professional billing process.
2. Offer multiple ways to pay
   Customers are more likely to pay when you make that process as easy as possible. Offer a range of payment options directly on the invoice, such as payment gateways (Stripe, PayPal etc), credit/debit card processing and direct bank-to-bank instant transfers. Reducing friction drastically increases the speed of collection.
3. Break up projects into multiple invoices
   Instead of waiting for the entire project to conclude, structure large jobs to include an upfront deposit and staggered progress payments that are tied to milestones in the project. This strategy speeds up cash inflow throughout the project, giving you a stable flow of revenue that boosts your cashflow and your available working capital.
4. Run an efficient credit control function
   Make sure you have a strict credit control or debt management process in place. This means setting clear payment terms and being systematic about chasing late payments when deadlines are missed. Regular monitoring of aged debt helps you quickly identify any overdue accounts and take decisive action, such as legal escalation or using a collection agency.

Faster payments keep cash flowing into the business, keeping the company’s financial health in check and helping you mitigate some of the current economic challenges.

Come and talk to our team about effective strategies for using sophisticated e-invoicing, adding more payment options, being strategic with your invoicing and keeping aged debt under control.