One of the biggest problems in B2B is late payments. In a study of 150,000 Australian businesses, about 53% of invoices were paid late. Delayed payments affect cash flow, limiting your business’s ability to grow and thrive.
Collecting payments on time is as important as making the deal. Inadequate cash flow not only slows down your business’s day-to-day operations but also impacts your business’s overall progress.
Here are some best practices and solutions that can help you reduce late payments in your business.
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Before you work on reducing late payments, you should understand why customers pay late in the first place.
Why are customers paying late?
Understanding customer payment behaviour and trends are crucial to planning ways to reduce your late payments. By knowing what you’re dealing with you can implement methods that fit different business needs.
1. Manual communications workflow
Quick and persistent payment reminders are crucial to minimising late payments. Manual communication can be a time-consuming task for your team. Invoice reminders are time-sensitive communication that you should be sending at critical periods leading up to the due date, and when you’re dealing with hundreds of invoices, that can add up. When you don’t send invoices on time, customers won’t get notified to prepare for their payments and are less likely to pay on time.
2. Manual payments
In today’s digital age, digital payments are no longer a nice-to-have option for your business- it is a must if you want your business to survive. While manual payments still have their place in the B2B space, digital payments give your customers a convenient option that resonates with how an increasing number of businesses now transact, which is online. Manual payments such as paper cheques and, to some extent, bank transfers take time – both with how you process it and how customers get to pay you.
3. Customer dispute
A customer may delay payment if there is a dispute regarding the product/service, the price charged, or the payment terms. Perhaps your sales team offered a special discount that your billing department needed to be aware of. Visibility of data and accurate invoicing is necessary if you want your customers to make payments on time.
How can you reduce late B2B payments?
Late B2B payments can be costly, especially for SMEs. But while late B2B payments are quite common, there are ways to reduce them. Here are five ways you can reduce late payments in your business
1. Automate the accounts receivable process
Accounts Receivable (AR) automation can be a game-changer, especially for small and medium businesses. According to the B2B Payments Innovation Readiness Playbook, 87% of respondents reported faster processing speed. 79% reported improved team efficiency, 74% reported better customer experience, and 72% saved operational costs.
Investing in AR automation, you no longer have to send follow-up emails, texts, or phone calls to approve invoices. Creating custom workflows that can automatically route your payments and invoices for approvals is also possible. You can also send reminders to your customers, lowering the chances of missed deadlines.
Automating your accounts receivable process also means auto-reconciliation of payments to your invoices. And by syncing to your ERP, you benefit from a unified source of truth, minimising duplication and closing the loop in your AR process. With faster processing times, your customers understand they need to keep their end of the deal to maintain efficient transactions between your businesses.
2. Provide direct debit payment options
Direct debit payments accelerate the payment process and help businesses deliver stellar customer service. With a direct debit authority, you can automatically collect payments from your customers when the invoice becomes due. With an automated payment system, you get paid on time, saving your team time chasing overdue invoices.
3. Implement an online payment platform
If you could get the payment at the point of sale, you would always have timely payments. However much you like the idea, it may only sometimes be possible. Often businesses offer credit terms to their customers. You will likely have late payments if your business does that.
How about offering online payments that your customers can easily access via email invoices and SMS reminders? When you make it easier for your customers to pay, you also get your payments faster. Offering an online payment option means you no longer have to wait for a cheque to be signed and mailed. Online payment portals make it easy for payments to be made using debit cards and credit cards. It means you can get your money in seconds, not days or weeks.
4. Provide incentives for good payment habits
Incentivising your customer’s good payment habits motivates your customers to pay on time. You can provide early payment discounts to encourage your customers to pay early. You can also encourage customers to pay you using a method that increases your chance of receiving payments on time—for example, giving credit term extensions to those who sign up for direct debit.
5. Communicate with your customers
Active communication is key to being on top of your collection process and avoiding late payments. Clear payment terms from time of onboarding should set the agreements that both parties should fulfill. Proactive communication such as overdue invoice reminders can ensure that your invoice remains on top of the customer’s mind, increasing the chances of timely payments.
The lack of communication between the customer and the business is often the main reason for tension around payments. Some customers may not be able to pay because of low cash flow, and some may need help to comply with the initial terms of the payments. Whatever the case, it is crucial that you communicate with your customers regarding any such issues to find a solution.
However, don’t forget to document everything. You should follow up every phone call with an email detailing agreed action items by both parties. Doing so reduces the chances of disputes in the future.
Eliminating late payments starts with you
Many small businesses struggle with late payments. As a result, businesses face cash flow issues, which can directly impact their profit and growth prospects. If your customers need to catch up on their payments, you should address why they must pay on time. Helping your customers establish good payment habits is crucial to eliminate late payments. You can help them by providing payment solutions and options that offer them convenience and flexibility.
With ezyCollect, you can take complete control of your accounts receivables and start getting paid on time. Please speak with one of our payments experts today to learn about options for your business.