Five steps to faster payment

Small Business Guides

4 min read

Cashflow is king for small business. You feel it when payments are late. Yet up to 40 percent of invoices are overdue by a month or more. We spoke to Veda, an Australasian credit reporting agency, about five things you can do to help get faster payment.

1. Review and adjust your payment terms and pricing

As a business owner, you might have set your payment terms based on what others do in your industry. Often these payment terms are based on tradition – invoice at the end of the month and allow 30 days to pay. But you can tweak this to get faster payment. Things to consider are:

  • How long do you give customers to pay you? Could you shorten that period?
  • How long do your customers actually take to pay you?
  • Could you offer an early payment discount?
  • For consistently late payers, you could change their payment terms. For example 50 percent deposit, cash on delivery, or late payment penalties.

It’s also a good idea to check your pricing – things might have moved on since you last reviewed what you charge. Have your supplier costs such as goods, services or distribution increased? Is your profit where you expect it to be?

If you’re putting off reviewing your payments and pricing, this might be a task to give to an expert advisor. It’s vital that someone does it – even if that someone isn’t you.

2. Get insight and data about who you’re doing business with

It’s important to know who you’re dealing with when you’re doing business. Do you have trusted customers who pay you on time? If that’s not the case, or a new customer approaches you, data and insight into their background will help make sure you’re not caught out by late or non-payment. A particularly useful tool is a credit report.

Originally designed for use by large businesses and corporations, credit reports are now accessible to smaller businesses. Tools like Veda’s SwiftCheck credit reports can tell you:

  • if the company you’re dealing with is legitimate and registered (not a fake)
  • how fast or slow they are to pay their suppliers
  • if there is any non-payment history (or defaults against the business)
  • any pending legal action
  • information on the directors – such as whether they’ve been bankrupt

Don’t just take someone’s word that they’ll pay you back on time. Do your homework and make sure their payment history reflects what they say. Investing in a credit report, and adjusting your payment terms accordingly, could be your gateway to faster payment and better cashflow.

3. Get expert assistance

Analysing payments and chasing up bad debts has to be done – but that doesn’t necessarily mean you have to do it. Getting a bookkeeper or accountant to help manage your cash flow will give you several benefits.

  • They’ve seen it all before
    Bookkeepers and accountants have dealt with all kinds of customers in many types of business. They know how to get the best outcome for your business.
  • They’re good at it
    They’re experienced and will bring a level of rigour to your financials, with professional reports based on accurate data.
  • They look forward
    Your advisor helps you get ahead of the game with accurate forecasting, which will help you smooth out cash flow and avoid problems before they occur.
  • They’re neutral
    Having someone other than the business owner following up late payments can help your late payers to save face. They can keep a good relationship with you as the business owner, but make sure you’re getting paid. It’s a win-win situation.

4. Make your money work for you

If your customers pay you after you’ve provided them with goods or services, you’re effectively providing them with credit. You’ll have business costs to cover before you get paid. You might find that even after optimising your payment terms, you still have a cash flow gap. There are a range of tools to help bridge that gap, including:

  • Invoice or trade finance
    Some financial institutions will buy your sales invoices and chase the debt themselves. You have to sell the invoice at a discount but you get the money straight away.
  • Overdraft
    Does your overdraft fluctuate into cash occasionally? If not, consider converting that debt into a term loan, with a lower interest rate.
  • Asset finance
    Many businesses free up cash by financing major assets instead of buying them. Hire purchase, rent-to-buy and term loans all match the finance over the life of the asset.

5. Give your customers more ways to pay

A good way to make sure you’re able to get paid faster is to check how your customers actually pay you. Allowing payment terms of 30 days was the norm when customers paid by cheque, but there are several faster payment methods you can offer them.

Some to consider are:

  • online invoices that allow clients to 'pay now' from within the invoice
  • credit card via online payment services like Stripe or PayPal
  • direct deposit
  • EFTPOS via point-of-sale software like Vend or eWay

Faster payment is a realistic expectation

Giving customers a month to pay bills made sense when everything was done by cheque. But digital transactions have been around for years now. Make sure your business takes advantage of all those tools to get faster payment.