How small businesses can get paid faster and avoid bad debts
Sound debt collection should be on the radar screen every of every tradie and small business owner.
A Late Payments Study by Intuit Australia and PayPal Australia found that, at any one time, Australian small businesses are owed an average of $13,200 each and that their owners generally waste 12 days a year chasing money.
Another report by London-based MarketInvoice reveals that most invoices globally are settled after their due dates and that last year, Australian firms took the longest time to pay – more than 26.4 days after the due date – out of the 19 countries surveyed.
Adding to the stress is the fact that small businesses don’t have the same power as their larger counterparts to negotiate good payment terms. Research by credit information provider Veda reveals shows that small businesses are being pressured to pay invoices faster while larger businesses drag their heels, paying their invoices 1.5 times slower than the average.
So what can you do to get paid faster and avoid bad debts?
Firstly, be careful who you give credit to. Before a large amount of credit to someone, do a credit check on them. There are plenty of expert firms that do this. You can also do an internet search on the person or ask to speak to their accountant or a trade referee.
If you can, ask for prepayment or a deposit before the work is done and try to insist on payment straight after you’ve completed the work.
If you can’t do this, set appropriate payment terms in advance. Know what’s standard in your industry and don’t provide longer payment terms than your competitors. Detail the terms in your quote and ensure the customer is clear about them.
Make it easy for customer to pay you straight after you’ve finished the work. Speak to your bank to find out how you can accept credit and debit cards remotely or payments through mobile phone or tablet technology.
If you do have to send an invoice, the sooner you send it, the sooner you will get paid. So have a good system in place. And don’t send your invoices by snail mail - email them.
Ensure the invoice clearly states all relevant details, such as the invoice number, your ABN, payment date, your bank details, a full description of the service provided and the details of whom to contact with queries. This will make it easier and faster for the customer to make a payment.
Ensure you follow up on people who owe you money in a timely way. Also consider investing in one of the accounting software packages that automatically send out payment reminders as payments become overdue.
Consider charging interest or penalties for late payments. And clearly outline these in quotes and invoices. Or provide a discount or reward for timely payments.
Don’t be scared to communicate and ask why there is a hold-up. There could be an issue that’s easy to sort out quickly.
If you find debt collection stressful, consider passing the job on to a professional with the right skills and experience.
Have a safety net or back up plan. There’s always a risk that a big customer can run into difficulties or the economy could turn, making it harder for many of customers to pay on time.