LATE payments, bad debt and surprise expenses are cash flow problems small businesses can’t avoid.
A recent study by Sage, Late Payments: The Domino Effect, found that 15% of invoices in Mzansi are paid late, while more than 88% of payments due to small business’s are never made or are made so late that were already written off as bad debt.
Charles Pittaway, managing director at Sage Pay offered ways small business owners can deal with this challenge:
Keep your eggs out of one basket
Try not to rely too heavily on a single client for most of your income, especially if they are notorious for paying late.
Having cash in reserve will help you to fund your business’ growth, meet your own payment deadlines and avoid penalties.
Stay on top of administration
The study found that small businesses spend an average of 15 days following up on payments. Accounting software automates a lot of this work by sending reminders on overdue accounts, making sure invoices are filled correctly and not rejected. Make sure the invoices are sent to the right people and that the payment terms and conditions are clearly defined, including penalties for late payments.
Offer payment options
Cellular payment methods that use apps and card readers let customers pay on the spot and improve the customer experience.
Offer discounts to debtors who settle their accounts early and run credit checks on customers before offering payment terms.
Get on good terms with financers
Establish a line of credit with your bank before you need it. This allows you to build up a credit record, negotiate lower interest rates and gives you immediate access to funds.
Manage your working capital
Have enough stock on hand to cover demand but not too much stock which cuts into your cash flow.
Employ a dedicated resource
The study found that 24% of small businesses don’t have a dedicated system for chasing payments and 13% don’t have the time to do it themselves.
