“Imagine walking into a shop, taking what you want up to the counter, and then, when the time comes to pay, saying ‘thanks – but I think I’ll just take these now and pay later’, and casually walking out with your items. You obviously wouldn’t dream of it – so why is this kind of behavior acceptable when it comes to paying small business suppliers?” Stephen Kelly, CEO, Sage.
If late payments persist they will hamper your ability to survive as a business, forcing you to take action that may or may not ultimately benefit your long-term strategy for growth and success.
A survey that we recently conducted found that 11% of all invoices issued by SMEs are paid late. On the surface, 11% may not seem a lot, but it makes all the difference to business owners and operators.
SMEs not only account for a significant (in many cases the majority) share of economic activity and employ a large share of the working population, but they also drive innovative and vibrant sectors in virtually all parts of these economies and in every region and territory. Meaning, the interest in getting SMEs paid on time or as near as, is all of ours.
We spoke with a number of our Global Experts and asked what can be done to stem the flow of debt and open the ways to stability. Read on for their thoughts, and follow our #SageTop100 on Twitter for more commentary.
How can you identify late payments early?
“The biggest mistake businesses make when invoicing is not having a standard process in place to ensure the bill goes out on time and is trackable throughout the collection process. Over eighty percent of billing problems are caused by not having a standard process, in my experience. I always suggest clients invoice as soon as they can. In many smaller organizations, it’s important to help your team understand how important the invoicing process to your organization’s and their long-term success.
Many times, invoicing reflects an entrepreneur’s insecurity about being paid what they are worth, and this can cause significant problems over time as people see what their leader does.” – Tripp Braden @TrippBraden
“I think many small businesses just assume they’re going to be paid late. If you’re doing business with larger corporations, this is an all too frequent occurrence. The key then is to prepare for it. Make sure you invoice your customers and clients quickly. In some cases, late payments are due to SMBs saying they’re too busy to send invoices.” – Rieva Lesonsky @Rieva
If there’s a role for intervention, what is it?
“The first notice should be courteous and a reminder. The second should be to ask for a specific response, again, still courteous. The third attempt should be over the phone. Talk to the customer. Find out what the issues are. Offer options, if any. The personal interaction can often lead to a promise to pay, that the customer typically follows through on.” – Shep Hyken @Hyken
“Automating your accounting systems might help, particularly if you have an automated collections process. Another solution to “tide” you over until payment arrives is to turn to invoice financing or factors that provide you with money on your accounts receivable. Compare offers before you commit, since, in some cases, the fees can be high.” – Rieva Lesonsky @Rieva
“The best process to follow to be paid on time means the business and their customers both understand clearly what is expected of both. Today business leaders must understand how their customers pay and what their customers’ process for payment is.
The person handling the payment on your team should be clear on the customer’s expectations for billing. It’s critical to have the correct contact information for customers as well as knowing how to follow up as needed with the customer. Make sure you recognize when your invoicing person does a good job.
Help your people by creating a standard process for follow up so that is easy to see where an invoice is in your billing process. When using billing automation make sure your people stay on top of the invoice throughout the process.
Provide additional training so people are comfortable with the stress involved when dealing with non-payment of invoices. Most people feel uncomfortable having to follow up with non-paying customers. Many times, the problem can get significantly worse because of the lack of follow through and understanding.” – Tripp Braden @TrippBraden
What recourse do you have to accounting support?
“When people pay late you must have an invoicing process that shows you when it happens. Many organizations don’t always know when a client is the habitual slow payer. Technology can help with this. When they pay late your people should assume it’s an error, not a pattern. It’s about the mindset your people have when dealing with these challenges that decide if you keep the customer or not.
If it’s habitual you may want to get the right people involved on both your side and the customers to decide the best course of action moving forward.” – Tripp Braden @TrippBraden
Is it viable to credit check new customers?
“If you have a history with the company, you know what to expect and how late payments are likely to be. If you don’t, you might try to head off problems upfront, by asking for partial payment before you provide the work. You can run credit checks on companies to see what their payment histories are.” – Rieva Lesonsky @Rieva
“Depending on the type of business, a credit check is appropriate, if not a necessary step in setting up a new customer.” – Shep Hyken @Hyken
“If you’re friends with the customer, it becomes more critical to have a system in place from the beginning of the business relationship. It’s the process that is clearly understood in advance that helps resolve these situations more quickly.
Two rules of guidance on this. First, it’s not personal it’s the process. Second, know your worst-case scenario in advance. When people aren’t paid it may be natural to over-respond and forget you’re dealing with people, not an organization.
The better you become at understanding what results you want and need, the better off you are at getting the best solution for you and your customer.” – Tripp Braden @TrippBraden
If you don’t have the staff, how can you prioritize invoicing?
“This is a matter of cash flow. Do you want it or not. Getting paid is a part of business. The system you set up for invoicing and accounting is every bit as important as the sales and marketing department. If you are going to make a sale, it doesn’t make sense not to collect on the sale.” – Shep Hyken @Hyken
There are many reasons why SMEs are considered the backbone of the economies. They typically account for the majority of employment, pay a substantial share of corporation taxes and are key drivers of growth, innovation, and diversity. Their contribution is particularly noteworthy given the obstacles they face including lack of financing, difficulties with staff recruitment, late payments and a disproportionate burden of compliance with regulation and tax rules.
They require and deserve our support.
Sage’s recent research explains the most common reasons for late payments among SMEs and the barriers they are facing as they tackle the problem.