How to get ahead of late payments
A healthy and reliable cashflow is vital to the competitiveness of small businesses. This issue is well recognised in the industry, with the Business Council of Australia inviting companies to pledge to pay small businesses within 30 days as part of the Australian Supplier Payment Code.
Our latest Late Payments analysis found Australian small businesses are the country’s best payers, while big businesses record the slowest payment times. Businesses with more than 500 employees in the finance, insurance and real estate sector are the tardiest payers (20.2 days on average), followed by companies of the same size in the communications (19.9 days) and utilities (19.3 days) sectors.
While late payments have fallen across all business sizes over time, the gap between small and large businesses has grown significantly. From 2011 to 2018, businesses with less than 50 employees halved their late payment times (from 20.86 to 10.61), while businesses with more than 500 employees only shaved six days off late payment times (from 22.74 to 16.97).
It can be time consuming and frustrating for small businesses to spend hours chasing unpaid invoices. To help you get ahead of late payments, we encourage you to consider the following tips.
1. Check a company’s credit score before you work for them
You can access a company’s credit information including its credit history and whether they pay on time through commercial credit bureaus such as illion. These reports will give you a clear idea of whether a company will pay on time to help you better manage cashflow.
2. Negotiate payment terms at the start of every project
Depending on which industry, or profession, you operate in, it might not be possible to request 100 per cent payment upfront. However, you may be able to structure a payment plan which is 50 per cent upfront, or shorter payment terms, i.e. 30 days
3. Discuss your concerns with your key customers
If you are experiencing uncertainly and stress, it is worth discussing it directly with your key contact at the company. Often they are unaware of invoices being held up, particularly in large companies where accounts payable operates in a vastly different area of the business, and they may be able to help you expedite payment.
4. Don’t let poor processes impact your cashflow
When dealing with large corporates or government departments, they will always struggle to turn around payments fast. Make sure your invoices are prepared and have the right details, so you can submit them earlier and you avoid any need to rework them. This can help ensure your cashflow stays on track.
Extracted from Inside Small Business