There’s a large restructuring of the payments industry that’s being driven entirely by consumers that are increasingly savvy and cash-strapped finding the options that suit them.
Small businesses need to keep pace with this rate of change or else see their margins eroded to zero. According to the Reserve Bank of Australia, credit card debt earning interest hit $17.75 billion in February, the highest point since Aug 2021. It’s an example of how quickly money can slosh from one payment method to another based entirely on financial hardship.
If I asked you what a regular, expensive cost your business incurs, you might think of employee churn or changes to supplier costs. But you might be surprised to learn that there’s a hidden and very expensive cost lurking – one that everybody has, and one which most just accepts as the ‘cost of doing business’. And that cost is not getting your bills paid on time.
Why do we accept this?
The truth is that customers paying late – even if they don’t turn into longer term bad debt – are holding your business back in more ways than you know, or want to accept.
Customers paying late is such an entrenched part of most businesses, that it is overlooked as an area for innovation, cost reduction or even customer growth. But it absolutely is an area that can become not just a cost reduction centre but with the right tools in place has the potential to be a growth engine.
Contact kills margins
The problem with customers not paying bills on time, other than the money not being in company accounts when it was expected, is the additional costs that are on-hand and kick-in to contact customers about their overdue bills.
Costs for contacting customers with overdue bills are, generally, aggregated over the entire customer database. But if those costs were isolated to just the customers paying late you might be surprised to find that much, if not all, margin for that customer has been wiped out in that month, a financial quarter or even longer.
How non-payment stymies company growth
The need to monitor overdue customers is real – customer debt left unchecked can become a debt collectors playground or a thorn in the side of your customer growth.
A surprising amount of leaders I’ve spoken to simply focus on their area and don’t take a holistic perspective to connect the dots between what happens when cutting customers off to avoid having to deal with managing bad debt, and the impact on the other side of the business.
Imagine cutting a customer off over $100 of unpaid bills. Okay, great you’ve nipped the problem in the bud, but the other side of the business is focused on growth with no control over the leaking bucket of customers leaving or being disconnected. And at an average cost of $150-$250 per new customer – of which there is no guarantee they will be a better paying customer than the one your business just cut off – now the business has a $250 to $350 per-customer problem to solve.
Stop leaking so much, grow faster
There’s one last challenge to address. The current systems and processes are the way they are because customers do not, by in-large, want to tell your company they’re going to struggle to pay this month’s bill. Sharing personal details about why they can’t pay is embarrassing, time consuming, and in this environment is just one more piece of personal information logged in their account which could be stolen in a hacking attack.
Who do customers trust to help them?
In times of crisis people turn to their family and friends to help them get through. After all, despite all the effort and focus on customers some of Australia’s largest service providers remain some of Australia’s least trusted brands and after the recent spate of ID hacking who could blame them for not wanting to share personal stories and information with a company?
Flexible payment plans that allow customers to pay in installments is the first tool at your disposal. But that’s par for the course. The rest comes down to technology, which means third party providers.
Payment processing platforms such as Stripe and Square allow businesses to accept payments from consumers in certain circumstances, while also offering tools to allow companies to manage their payments backend. The trick is how many different payment gateways will these platforms allow to permit as many paths for the customer as possible. More broadly, companies such as GoCardless, which Dynamic Business has been covering, have positioned themselves specifically for helping businesses reduce bounced payments.
You’ve also got to consider whether using digital payment platforms such as PayPal and Amazon Pay will increase the chances of customers being able to settle a bill quickly that they need to. I suspect the answer is yes.
We run a small payment platform called HelpPay, which allows family and friends to pay for your bills if you’re experiencing financial hardship. To underline the scale of the problem small businesses face, we’ve facilitated help between thousands of people for over 280 of Australia’s biggest brands – chances are your brand is one of them. We’ve only been operating for 14 months.
There’s simply no stopping or controlling the number of methods consumers will seek out to manage their financial matters. It’s a case of chasing after them with every tool in your toolkit and never, really, stopping.
There will come a time when the economy starts to warm again and the pressure on managing payment gateways and bottlenecks will shift towards maximising profit and securing market share, rather than minimising losses. Until then, everything should be on the table.
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