Late payments for SMEs means more than just a knock on cash flow. Businesses earn less interest on money that should be in the bank (while the delinquent payers finance their own operations with it). They hire fewer people and are unable to offer pay rises; repairs and maintenance and the purchase of new equipment get put on hold. Businesses may also be unable to pay their own suppliers on time.
Released in December 2017, an international survey commissioned by Sage revealed that South African businesses can spend up to 15 days a month chasing a whopping R25 billion in outstanding invoices. Imagine how many jobs R25billion could create!
There are lots of ‘tips and tricks’ on the internet designed to assist SMEs get paid fast. We’ve read a lot of them so you don’t have to and put together these top-five:
- Spell out your payment terms upfront – Get acceptance in writing and re-state the terms on your invoices. Do you accept credit cards? Prefer an EFT? Charge in rands if you operate in the export market? Include when you expect to be paid upon invoice, not receipt of invoice – within a week is perfectly reasonable if you invoice via email.
Consider (and communicate) charging a penalty for late payments, or offering a discount for early payment. You might also notify the client/customer that you will assess accrued interest charges the day the payment is late and that the customer could also be liable for fees associated with debt collection.
Xero offers advice here for how to make an invoice.
- Sweat the small stuff – Keep detailed records and make sure your invoices itemise everything and its cost and are accurate. Write your invoices clearly so the client/customer understands the charges. Always include your bank and contact details. Here are some free templates you can use. It’s equally important to document a history of your invoices and reminders and have them at your finger tips should you receive a query.
- Make a courtesy call where possible to your customer before payment is due to explain you’ve completed your work and to check they are satisfied and that there are no issues which could delay payment. Then send your invoice immediately to the right person.
- Follow up right away when payment is delayed to find out why. Send a reminder or better yet, make another phone call. The squeaky wheel does get oiled and phone calls are roughly 80% more effective than emails. A company insisting on payment will often be paid before businesses that do nothing. This UK site offers an example of how to write a late payment letter.
- If you have to continue to chase, make sure you go after the oldest and largest debts first.
Finally, an article in the UK has listed the year’s best invoicing apps. Many are available here in South Africa.