Earlier this year, the Small Business Ombudsman addressed a growing problem for Australian businesses – chronic late payment. The issue is not one to take lightly, considering Australia comes in behind Mexico and South Africa when it comes to outstanding payments, with businesses owing around $8billion. Since companies are only able to thrive on the lifeblood of cash flow, a late payment or unpaid invoice can be the kiss of death for a small business.
The statistics are frightening, with 90 per cent of small business failures being due to poor cash flow. Almost half of all small businesses have more than $20,000 owing to them from late payments, and payments are then late 40 per cent of the time.
Ensure you are clear around the pricing and deliverables up front
As a small business owner for over ten years, I have witnessed the late payment problem particularly closely as it also plagues the influencer and creative industries; with sole operators regularly being paid late and sometimes not at all. This industry has traditionally had a culture of late payments, with the average time from job to payment taking around 43 days.
When I founded WINK Models in 2007 I committed to making it company policy to pay all models within seven days, and I am proud to say that ten years on, we still pay within seven days. This ethos has continued into my second company, theright.fit where we use Stripe, a global payment gateway, to hold funds in escrow on booking, which ensures all of our talent are paid within 48 hours. Tools like this allow us to facilitate a seamless process for our clients, and ensure we retain the appropriate data.
But not all customers are guaranteed payment within 48 hours. So how can you encourage prompt payments for your business?
Be transparent and get it in writing
When making any commercial agreement, ensure you are clear around the pricing and deliverables up front. How we do this at theright.fit is by ensuring contracts are handled in the platform, and the brief clearly explains expectations of both parties and that all parties ensure they have agreed prior to moving forward.
Similarly, having your payment terms in a written contract is a non-negotiable, and you will be surprised how many companies don’t do this. A contract clearly states the terms and conditions of the transaction and should include your payment terms so there are no surprises. Your payment terms should include when you expect to receive payment, deadlines for all deliverables, what payment methods you accept and debt recovery options.
Incentivise prompt payments
Rewarding those who pay promptly encourages better behaviour in the future. You can reward prompt payment by building a discount into your cost and offering this discount for early or on time payment. You may also like to add to your invoices a chart that reflects your client’s track record for payment times or highlight how much money they have saved thus far by paying in full and on time.
Understand your rights
Many business owners try to avoid confrontation around unpaid bills due to not wanting to upset customer relationships, however, it is crucial to the bottom line that you fully understand what industry frameworks are in place to protect business owners from late or non-payment. Small business owners can understand their rights by visiting the ACCC website.
Offer friendly reminders
Everyone is busy, and sometimes bills are missed or misplaced, and while frustrating this is sometimes an innocent admin error. The majority of accounting tools online offer the automation of friendly reminders for unpaid invoices that will encourage your customers to make payment in a timely fashion.
Make payment easy
From BPAY, PayPal or credit card, there are many ways of making payment easy for customers outside the normal cash or direct deposit method. Having multiple ways to accept payment ensures a seamless transaction that is vital to the overall health of your business. I found by offering credit card payments at the theright.fit that we were making the payment process much simpler and more convenient for our clients while insuring that we were paid promptly. Some platforms also offer a Pay Now option and this can help encourage customers to pay faster, so consider adding a link to all invoices to prompt clients. We recently introduced a ‘payment request’ function, which allows talent on the platform to issue an invoice for work regardless of whether the job was booked through the site, encouraging prompt payments.
Since late payments are such an issue for Australian businesses, it is integral that we be proactive in shifting this culture. At the same time, the low cost tools available to businesses are growing, and we should be using these tools effectively to ensure being paid in full and on time becomes the rule, rather the exception.