Considering small businesses employ nearly half of the Australian workforce, you’d want to hope they’re getting some fair cashflow.
According to new data obtained by Xero, that’s hardly the case. From looking at 500 small businesses, it was discovered that 62 per cent of small businesses have been subject to late or unpaid invoices in the past year. We all know that feeling of crawling through to the end of a pay packet, but what of the pay packet never came? Or worse, there were several people depending on you for their own pay packets?
As a completely self-funded business employing eight staff across a range of full-time, part-time and freelance contracts, LVLY, a same-day gift delivery service out of Melbourne, can’t afford – both literally and figuratively – to have overdue payments on their books.
“If you feel uncomfortable chasing invoices, try sending a standardised reminder letter, which helps to take the personal aspect out of your chasing.”
“We experience late payments frequently,” founder Hannah Spliva tells us. “Most of our customers buy products directly from our website, which means they pay upfront before orders are delivered. However, most corporate customers won’t order online and like to be invoiced, this is sometimes where we run into trouble. Despite asking for 50 per cent payment upfront, this rarely happens and we are often left chasing payments which are beyond the 30-day payment terms.”
The knock-on effect of delayed payments is massive, including leaving both employees and landlords out of pocket.
“The biggest problem is cashflow and having a shortfall of revenue at the end of the month,” Hannah explains. “The ripple effect is that sometimes you struggle to pay suppliers on time – some businesses are in the position where they’re struggling to pay salaries and rent because of late payments.”
But it’s the toll it takes on business owners personally, more than their pockets, that’s really worrying.
“I think any kind of financial pressure, personal or work related, has a pretty negative effect on your stress levels and general wellbeing. The stress is much greater when you have the responsibility of paying people’s salaries and keeping up to date with your own supplier payments.”
Review your invoices regularly
Don’t wait until the end of the month to see where you’re at – if you’re not already, you should be reviewing your outstanding invoices on a weekly basis to make sure you’re on top of things. And make sure to block out a period of time in your diary, say, on a Tuesday, to force you to take on the task.
Take personal out of it
If you feel uncomfortable chasing invoices, try sending a standardised reminder letter, which helps to take the personal aspect out of your chasing. And it doesn’t have to be super serious – it’s just a reminder and doesn’t have to be threatening, and you can use certain language to make it a friendly extension of your brand.
Keep a track of habits
You might find there are one (or more) clients who are notoriously bad at sticking to their invoice dates. Start keeping note of those who do this more than a certain number of times. If there’s a pattern, you might consider adding particular penalties for this client, or invoicing them in advance to solve future hiccups.