As a business owner, you have several important things to worry about. In the beginning, you try to perfect your products or services and outpace the competition. Then you try to make successful sales and keep your clients to order again from you. However, one of the troubles is coming from not receiving cash on time. Your clients simply may delay paying your invoices. Do not worry, as we have listed the 4 most common reasons why clients may delay the payment. We will guide you through how to prepare for it and to minimise the waiting period.
Receiving a late payment for the goods or services is not only inconvenient, but it can also seriously harm the cash flow of small and medium enterprises (SMEs). The unpaid invoices are recorded as an asset on the balance sheet under the Accounts Receivable (AR) section. However, it is not possible to pay your own expenses or salaries with it. The unpaid or delayed invoices are a free credit to your clients and result in struggles for the 1 in 5 UK’s SMEs whereas in the US 82% of SMEs experience troubles due to cash flow. The financial costs are tremendous- the UK SMEs are losing around £51 billion due to late payments.
The unpaid invoices cause cash flow problems even more during the COVID-19 pandemic, as the majority of the economic sectors experienced declines. In order to avoid the headache of a long period to get paid (days sales outstanding or DSO), you have to be prepared to answer and act on the most common excuses for paying with delay.
1. Problem: Missing or Inaccurate Invoices
Sometimes there is a post to blame, especially if your business is using the conservative manual and paper invoicing. When you send the physical invoice by post, it might occur that the letter is missing or is laying somewhere on the desk of the accountant or other employee at your client’s firm. Furthermore, manual invoicing is prone to mistakes. There are endless things that can get wrong, from the address details to the order number or even the final sum. Around 3.6% of manual invoices contain errors.
Solution: Get rid of paper invoices
Switching to electronic invoices will not only help to help the environment but also will save you costs on printing, postage, enveloped, etc. However, the most important benefit is that it will eliminate the possibility of an error. For example, the Kolleno extension is capable of seamlessly integrating into your accounting software and automatically sending the invoices right after a successful sale. The information for the invoices is automatically pulled from your accounts.
There is no room for error when using paperless automatic invoices. Moreover, the invoices will be branded in accordance with your unique corporate style and will include a logo. What is more, the system sends an electronic invoice via e-mail. This is also your proof of sending the invoice in the first place. Even if the client is telling that they did not receive an invoice, you have proof at your disposal of the timely provided invoice.
2. Problem: Client’s cash flow
No one has protection from cash flow problems. You are worried about your business’s cash flow, but it can also happen at your customer’s firm, so as a domino effect they will be delaying paying the invoice.
Solution: Offer partial payments
The cash-flow problem can be related to anything from cyclical economic downfall, to declining sales, or as in the current period- to the global pandemic. It may be temporary, so it is important to be on your client’s side. If you show discretion and will be helpful in finding mutually beneficial solutions, the clients will stay loyal and will continue using your services when they are back on track.
One of the possible solutions is to offer the client a payment plan. Kolleno software will not only send the automatic reminder but also will suggest a payment plan, that is suitable for clients. Moreover, receiving the partial payment will positively impact your cash flow and will reduce the possibility of bad debt.
3. Problem: No Reason
It may sound ludicrous, but it’s true- procrastination is one of the causes of delayed payments. According to a survey of 3,000 SMEs, around 34% of businesses didn’t have any reason behind their late payments. It simply wasn’t in their priorities. It makes sense, as usual, business priorities are increasing sales, making better products, etc.
Solution: Do not forget to remind
This is your business’s priority to receive payments on time, so you have to make sure you invest in chasing the late invoices and sending a timely reminder. This may be time-consuming and stressful for some employees to remind their clients about overdue due to fear of spoiling the relationship. According to the European Commission study, the fear of spoiling commercial relationships is the key reason for the delayed B2B payments.
Thankfully, modern technology allows to completely automate this process and does not require any human involvement. Kolleno AR automation software can be used as an extension with the accounting software you are already using. The machine learning technology will identify the perfect timing the client needs to receive a reminder. It will contact them via the most appropriate communication channel with tailored tone-of-voice.
4. Problem: The terms and conditions are not clear
Sometimes the clients may refer to the lack of clarity in your cooperation agreement. For example, they might state that they didn’t know the deadline for the invoice. Also, they may say the work is not satisfactory, or even find it difficult to process the payment.
Solution: Sign the contract before cooperation
Explaining the rules of the game is the simplest step to take before beginning the cooperation with new clients. Signing the contract with clear payment terms and conditions is a must. In the T&C section, you list the timeframe when the invoice should be paid, the payment channels, or what happens in case of disputes. If the client is dissatisfied with providing service or goods, they should notify within the agreed time after the delivery. Then you can make adjustments or adjust your cash flow projections. With Kolleno you can automate your invoicing and offer clients various payment channels.
The reasons for late invoices can be numerous and it is normal that sometimes businesses face them. However, there are tools to help improve the collections, credit control, and cash flow. Kolleno is happy to assist your business and provide tools that will help your company to achieve digital transformation.