Bad cash flow = bad news. And one of the biggest reasons for poor cash flow is customers not paying their invoices on time.
Late payments are a big issue for small businesses. Recent research by Market Invoice found that, globally, 60% of invoices were paid late, and that a shocking fifth of those were paid more than two weeks late. When customers are habitually paying this late, it causes a variety of issues for business owners and their finance teams.
So, how do you combat the potentially negative impact of outstanding invoices and get back in control of your payments and cash flow?
The key lies in some strategic use of technology, and a lot of thought about your internal processes and customer relationships.
Why late payments are such a big issue
If you’re a cash-poor business that’s relying on prompt customer payments, late payment of your invoices can spell trouble. No payment = no cash pipeline, after all.
If you’re expecting prompt payment from your customers, and basing your budgeting and spending on this money being in the bank, you’ll have an almighty financial headache when these payments fail to appear.
But it’s not just the negative impact on cash flow that makes late payments such a thorny problem. There’s also the amount of time you and the finance team need to spend reviewing your aged debtor reports, calling customers and drafting chaser emails to try and chivvy along the more tardy payers.
So the impact of late payments is twofold:
- Late payments create poor cash flow and restrict your spending power.
- Chasing up these debts takes up both time and resources.
The credit control challenges you need to overcome
Most small businesses will have limited resources for carrying out credit control. There’s little or no time to chase slow payers, and when you do get around to chasing customers it’s done on an occasional, ad-hoc basis that is far from effective.
So the challenges are:
- to remove the need for the time-consuming chasing of late payers.
- to have a process in place that ensures invoices are regularly paid on time.
The good news is that there are specific software solutions that can resolve both of these challenges. And with tech doing the hard work, you can spend less time on financial admin and more time actually running the business.
Let technology do the credit control work for you
Firstly, let’s look at the challenge of chasing up those late payers. Credit control is a tedious task for any business, but even more so for a small business where there’s limited time and people available to do it.
That’s why Chaser developed its credit control solution. What Chaser gives you is a software-based way to automatically chase customers, as soon as their invoice becomes overdue.
To quote the classic ‘Three Ps’ of credit control: polite persistence pays. And this is exactly what a software approach to aged debts provides. You write your own personalised email templates (keeping the human element), and Chaser automatically emails these out to late payers (making the most of the automation element).
Using an automated credit control solutions sees an average 26-day reduction in debtor days and boosts your underlying cash flow. And there’s also the reduction in credit control time, with businesses saving 11.5 hours per week in chasing time.
So the client wastes less time chasing payments and you have a more reliable view of their cash flow situation.
Automate your payment options and recurring invoices
Another fundamental process improvement to consider is making it easier for your customers to pay you.
If your business sends regular monthly or recurring invoices to customers, you have a great opportunity to use software tools to make this process easier – while also reducing your financial admin time and giving your cash flow a healthy boost.
Consumers and suppliers are increasing open to setting up recurring payments that take cash direct from their bank account or nominated credit card. The number of Direct Debit payments in the UK is growing at an annual rate of 5.8%, due in part to the convenience and efficiency of the Direct Debit approach.
An online solution, like GoCardless’ cloud-based Direct Debit system, makes it easy for your customers to sign up and give authority to take payments from them each month. Payments are collected automatically, you spend less time managing the financial process and you create a regular, predictable pipeline of cash into the business.
There are also card-based options, such as Stripe, where your customers can safely and securely store credit card details in the cloud, allowing you to debit their card for recurring bills, or take ad-hoc payments if that’s more relevant to your model.
Come and talk to us about improving your cash flow and credit control
Our focus at Tyrrell and Company is to take the very best of the cloud technology that’s available and give our clients our own particular take on implementing a digital way of doing business.
If you’re looking for a solution to your late payment issues, we can put systems in place to improve your cash flow, reduce your credit control and admin time and stop the headaches that are associated with bad debt and a poor cash pipeline.
Get in touch to arrange a chat and a coffee with one of our credit control advisers.
Or tune in for our forthcoming webinars and get the lowdown on cloud business solutions and the online future of doing business.