We’re all in agreement that making a big sale, especially for a startup, is fantastic. And when it comes to running a small business, managing cash flow is the key.
However, getting paid on time is one of the most difficult administrative challenges for small and medium-sized businesses.
After all, when customers fail to pay on time, the company’s cash flow suffers, which has repercussions for paying suppliers and service providers.
The ability to settle accounts efficiently and prompt clients to pay on time without jeopardising their relationship is a must-have skill for a small business owner. In this week’s Let’s Talk, we asked experts for advice on how businesses can get paid on time.
Joe Donnachie, Supply Chain Finance Manager at Octet
“Global supply chain constraints are having a knock-on effect throughout Australia’s business community. As goods take longer to ship, companies are putting off paying suppliers to protect their cash flow.
“This is a natural reaction, but slower payments will reduce a business’ ability to get the inventory they need, on the terms that suit them, to stay ahead of their competitors. If you’re a supplier, you’re always going to offer the best terms to those that can pay in advance and order the most stock consistently.
“Apart from solid relationship building, there are several financial options available to help companies get paid quicker or to help pay a supplier before you even have the cash.
“Whereas a traditional bank will often require a business to put up physical assets to secure credit, non-bank lending options often don’t require security, making them perfect for fast-growing, less mature businesses. This funding can then be used to obtain early payment on outstanding invoices or pay local and global suppliers quicker to secure better terms.
“So, while the business world would be a far more efficient place if everyone offered faster payment times, sometimes business simply doesn’t always work like that. Having access to intelligent non-bank funding providers can help keep everyone happy and in doing so, foster long-term supplier relationships that can be relied on when things get tough.”
Andy Mellor, Regional VP, ANZ at Kofax
“It sounds obvious but making sure you get the things you can control right is key. You’d be surprised how often people don’t include all the relevant details, such as PO numbers, or use outdated ones. This is especially common if you use manual processes where details can be missed or incorrectly inputted.
“If a customer is consistently late, it’s worth checking your supplier account has the correct payment terms, as that’s a common source of hidden delay. Small businesses should register on the MyGovID portal because it provides large businesses’ payment terms for more transparency.
“Finally, using an e-invoicing provider can speed processes by automatically feeding the data into your ERP, converting your invoices into your customer’s preferred format and allowing you and your customers to see the status of invoices by a web portal.”
Patrick Coghlan, CEO of CreditorWatch
“Getting paid on time isn’t always possible, but it can be better managed by knowing the credit history of your customers in detail. Using risk data to understand the payment behaviour of your customers allows you to make more informed decisions about who you’re doing business with, enabling you to stick with those who have a history of paying on time whilst avoiding those who don’t.
“It’s also essential to regularly assess your ledger. You may already have a firm idea of which customers are ‘failing’ or ‘hibernating’; however, for customers that fall into the hibernating category to identify if they present a high risk.
“With Omicron continuing to generate uncertain economic conditions, it’s crucial to ensure customers are meeting payment times, but make sure you follow them up with empathy. Conversely, take this time to target customers trading in the black for credit limit increases. Showing them a little extra attention in tough times could pay dividends later.”
Tony Been, Managing Director of Houzz Australia and New Zealand
“Staying organised with digital tools saves time and improves accounting accuracy and efficiency for getting paid on time.
“Keeping track of the payments received and of how much has already been invoiced is important for any business. This is especially true for construction and design firms since cash flow is critical to pay subcontractors on time and buy building materials.
“We heard from our professional community on Houzz that to stay on top of their bottom line, they need tools to track time and expenses and make billing easier and more accurate. Within Houzz Pro, pros can track any time they spend or expenses they incur on a project, from the office or from the field using the stopwatch function or adding new entries manually.
“All records of time and business expenses are stored in one accessible dashboard, with a consolidated view of all payments received amounts invoiced and remaining liability. Then in just a few clicks, our pros can generate professionally branded invoices that go straight into their clients’ inboxes.
“Our research tells us 90 per cent of homeowners prefer to pay for home renovation projects online. Houzz Pro allows professionals to offer their clients the convenience they expect with options to pay with a credit card, wire transfer or building a payment schedule that suits them. Pros told us that they especially love the built-in payment incentives that nudge clients to pay early or on time as it creates urgency for clients to want to make a payment deadline.”
Jason Toshack, Vice President and GM ANZ, Oracle NetSuite
“Cash flow is the lifeblood that keeps every business running smoothly. Delays in getting paid, spending time and money chasing overdue accounts, or worse, not getting paid at all can choke or halt operations.
“Today, many small businesses still manage the order-to-cash cycle manually. This not only increases the risk of errors, but it’s also time-consuming and inefficient. Mistakes make it difficult to accurately project operational costs and can also negatively impact customer satisfaction – and as we are all too aware, poor service can result in late payments, further disrupting cash flow.
“Automating the process will eliminate manual bottlenecks, minimise data errors and improve the flow of information from order entry to fulfilment, to invoicing. By setting up an efficient cloud-based system to manage your cash flow, you can reduce costs, shorten the credit-to-cash cycle, and go after new investment opportunities to grow your business.”
Adrian Ward, Service Director at ADP Australia & New Zealand
“Attracting and retaining employees is vital for any small business owner – now more than ever! Paying your people accurately and on time builds trust and strengthens the relationship.
Here are my three tips on paying employees on time:
Payroll success – set clear cut off dates. There are many people involved in your payroll process – employees, business owners and accountants or payroll providers. Align expectations on timeframes and dates to reduce any last-minute changes that impact paying your employees accurately and on time.
No one wants bad payroll data- Payroll is all about accurate data. Whether you’re using data capture systems or standardised templates, you need a consistent approach to support your employees in providing accurate information – overtime hours, annual leave etc.
Don’t be single point reliant – More than one person should be able to process your payroll on time, every time. Having a backup person or provider will keep your employees happy and engaged.”
Luke Fossett, Director ANZ Sales
“Payment failure is a hassle for businesses wanting to get paid on time. The introduction of PayTo this year is set to transform the future of payments in Australia. Launched in mid- 2022, PayTo in its simplest form is an instant direct debit and will offer businesses a faster, smarter and more secure alternative to credit cards.
“The average failure rate for credit cards is 7.9 per cent, with the average enterprise standing to lose approximately $4.3 million every year to credit card failure. The majority of B2B businesses will also spend between 10-35 per cent of the value of the payment recovering the failed payment.
“PayTo will help solve those problems. We’re also excited by how much we believe PayTo will help reduce fraud: For Australian merchants, $2.5 billion has been lost to fraud in the last five years, predominantly from credit cards. With PayTo, you will know in real-time that your customer’s bank account details have been fully verified and that the customer is who they say they are.”
Charlie Dewitt, managing director, ANZSEA, UKG
“There are two things to consider when it comes to getting the most out of the payroll process. The first is the value of an automated payroll process, no matter the size of your business. Automation lets you conduct continuous checks and balances without having to manually manage these processes. It also ensures that critical employee data is kept up to date, so that team members can easily process exceptions and changes as they occur.
“The second is the importance of being paid accurately. Although unemployment figures are set to reduce, workers in various jobs may not be getting the number of hours they really want or need. Australian business owners operate under complex award systems with equally complex taxation and entitlements to calculate. Therefore, while getting paid on time is important, being paid accurately for the work that has been completed is arguably more critical to the payroll function.”
Jonathan Perry, chief operating officer, BidFin
“In today’s operating environment, there are six actions businesses should take to get paid on time:
Agreement terms: A written agreement with the customer is essential to clarify details, including the transaction, agreed commercial terms, project deadlines, fees, charges, billing periods or milestones, and the penalty for late payments.
Request deposits upfront: Particularly for larger projects request a portion of the total bill at the beginning of the project.
Invoice quickly: Invoice customers as soon as possible, make sure payment terms mirror the agreement and review invoices issued versus projects completed regularly.
Maintain a good rapport: Develop good communication and an understanding of the customer’s business to build a healthy relationship.
Monitor payments: Establish a daily routine to monitor accounts, make sure payments meet the agreed terms, and follow up on any outstanding.
Make payments easy: Offer a range of payment options for customers through a payment provider. This gives your business an upfront payment and eliminates chasing late payments.”
Ben Pfisterer – CEO & Cofounder – Zeller
“Tools to help you get paid on time are essential to boosting your cash flow — as cash flow issues are a primary reason that half of SMEs close their doors in their first three years. Late payments from customers can be a major disruptor to cash flow. There are two primary causes of this — firstly, a business having a heavy dependence upon invoicing can be left waiting weeks for customers who get around to paying you.
“Secondly, slow funds settlement through select EFTPOS providers can see you waiting 2 – 3 days for funds to land in your nominated bank account. Having the right EFTPOS technology on hand helps you alleviate these issues. By enabling you to accept upfront payments for goods or services you typically invoice for, you get instant access to your funds.
“Additionally, newer EFTPOS solutions like Zeller Terminal give you the choice of a linked Transaction Account that delivers same-day funds settlement.”