Late payments: Why your invoices are delayed and how to get them paid faster

Chasing late payments is a big issue for small to medium-sized businesses. If you’re not receiving payments on time, it could lead to a dip in profits, cash flow struggles, or worse.

To gain a better understanding of why payments are late and the impact this has on small to medium-sized businesses (SMBs), Sage surveyed more than 3,000 SMBs across 11 countries. 

In Australia, the results paint a clear picture of the impact of late payments on businesses:

• 9% of all payments to SMBs are late
• SMBs spend 5 days per year chasing late payments
• 7% of late payments are written off as bad debt
• SMBs spend just under AUD$5,000 per year chasing late payments

So why do late payments occur and what’s stopping SMBs from chasing their customers for the money they need to keep their businesses running? Our survey uncovered some patterns:

Why do late payments occur?

While doing little to shed light on why some customers make late payments, Australian SMBs say 36% of customers give no reason for making late payments. However, when customers do provide a reason, 12% of the time it is that payment has already been made and the transaction is pending. Additionally, 10% of late paying customers say they only pay invoices at certain times of the year.

Barriers to chasing late payments

29% of Australian SMBs cite feeling they may jeopardise their relationship with the customer as the main reason they don’t chase late payments. Nine percent say they don’t have the resources to do so, and 8% lack the time.

The good news? Businesses can address the late payments issue without impacting the customer relationship. Here’s three tips to reduce the impact:

1. Establish strict payment terms upfront

Our survey shows the most common reason given for delaying payments is that the transaction is pending. There could be a significant improvement in timely payments if your business tightened up its payment terms from the start.

Late payers are likely to be aware of the situation they cause and could be willing to pay faster if it was a requirement for service. This helps to manage your customer’s expectations and gives them time to schedule their payment in advance.

2. Build the right relationships

Foster relationships with invoice recipients and make sure invoices are delivered to the right contact in charge of making payment. Better relationships also mean better communication, which is critical when it comes to getting an invoice paid.

3. Use automation

Automatic and digital payment methods, such as direct debit and e-invoicing, can make payments as simple as one click for your customers and virtually eliminate the top obstacles to getting paid on time. There’s no need for awkward conversations, strained client relationships or dedicated staff to give chase because the payment is reconciled into your account once the customer initiates the transaction.

Digital payments that are automatically reconciled in your bank account can also give you more visibility and control of your cash flow. Since those types of payments are more reliable, you can better forecast what funds you’ll have available throughout the year, giving you the agility to adjust as needed.

Discover how Australian SMBs fare against those in the US, UK, and more in our report: The Domino Effect: the impact of late payments.