When you run a small business, you’re an essential part of your community. Having personal relationships with your customers can make it hard to collect past due invoices, but not collecting them isn’t a viable option—nor is it fair.
In 2020, 76% of US small businesses experienced cashflow shortages, the majority of which was due to a nearly 10% increase in past due invoices. But that’s just the financial cost. Here’s what past due payments are really costing you.
1. Financial stability
You can’t go anywhere without hearing the phrase “cash is king,” and there’s a good reason for it. When it comes time to pay your bills, you can’t pay with IOUs or revenue that hasn’t been received yet!
Many businesses bridge the gap between money they are owed and money they owe by taking on debt. In fact, 43% of small businesses applied for a loan in 2020 and 70% of small businesses have outstanding debt, and this debt is expensive. Short term loan interest rates can go into the double or triple digits and the average credit card APR is over 18%! This creates a vicious cycle where small businesses become dependent on debt to keep their business running, and new revenue that should go to improving your life or business is instead going to pay your debts.
On average, 39% of invoices are paid late. It can make a huge difference to cut that number down so that you can avoid taking on debt or pay down any existing debt you have faster.
One way to reduce your average late invoices is setting up automatic payments. With autopayments, you’ll know exactly when you’re going to get paid each month and it’s debited automatically on the due date so you’re paid on time, every time. A good way to implement autopayments in your business is to set up a subscription payment model. (Here are more reasons why you should consider subscription payments.)
2. Customer relationships
When you’re setting boundaries and expectations around payments, customers will follow your lead. Are you inconsistent with sending out invoices? Are you lax about when and how you accept payments? Your customers will pick up on this and pay you in the same way, and this may cause tension when you try to collect from them in the future.
On the flip side, if you’re consistent with when you send out your invoices and strict with payment collection, your customers will know that you mean business and expect to pay on time or need to have a discussion with you.
The culture around payment collection is best set early. It’s easier to be lenient later on than to have to enforce new rules after already having been lenient. (In case you do have to chase down payments at some point, here are some ways to do it a little more gracefully.)
One way to change the payment culture in your existing business is to bring in a new software or third party to “reset” expectations. We have customers use Finli in this way all the time.
3. Tons of time
On average, small business owners already spend upwards of 1.5 hours doing administrative work per day, and that’s after their actual work day is done. Chasing down late payments is a repeating, recurring problem that doesn’t have a satisfying ending – best case scenario, you get paid what you were supposed to get paid some time ago. What else would you rather do with your time?
There are lots of software products that can do all of this for you. Automate what you can and digitize where you can. Some softwares to consider: Wave, Xero, Sage. If you’re looking for a platform that helps you with your administrative tasks, chases down payments and builds a good payment culture for you, AND offers customized and always-available customer support, consider giving Finli a shot.
Past due invoices can end up costing you a lot more than just money, and isn’t costing you money already bad enough? We built Finli so that you’d never have to deal with past due invoices ever again, and as a bonus, the rest of our platform can handle all of your small business administrative tasks for you. Schedule a demo today.