Receiving payments on time is essential for any business to survive. That’s particularly true of growing businesses. They have limited capital and manpower to recover debt and hold tardy customers to account. Yet in APAC, according to the Payment Practices Barometer report by Atradius 44.5% of B2B invoices are reported as overdue.
In India, the Atradius report showed that in 2019, “an average 39.0% of the total value of B2B invoices issued by Indian respondents remained unpaid at the due date. This is well above the 29.8% average for the Asia Pacific. In order to remain financially flexible, and to alleviate the financial pressure on the business, more respondents in India (51%) than in the Asia Pacific overall (41%) reported they needed to delay payment of invoices to their own suppliers.”
There’s no reason why someone else’s delays should compromise your business survival, so here are five useful tips that any growing business can employ to keep the cash flowing and ensure that their operation remains in good health.
Set the rules of engagement
Set clear expectations for all parties involved in any transaction, whether with suppliers or customers. These terms should be included in the contract. Make payment terms clear and include details like how services will be charged for; how much deposit is required; applicable fees for late-payments; and even the conditions under which an extension might apply. Getting the details sorted upfront will leave no room for confusion down the track, while also making it much easier to follow up on any missing payments in the future.
Create an ecosystem that works
Growing businesses can find themselves short on time and manpower, but the effort to establish an efficient process right from the start will quickly pay for itself. A workflow, which improves the efficiency of regular tasks like invoicing, tracking, reporting, and follow up, is crucial. The process could include: first invoice, a follow-up phone call, a reminder invoice with an extension date, a second reminder, a final reminder, and a notification of debt passed to an external collection agency. With the help of technology such as cloud-based financial management solutions, growing businesses can also build an ecosystem that’s integrated with other functions like inventory, CRM and e-commerce to streamline their cash flow processes.
Leverage the ‘recency effect’
The quicker invoices are sent, the sooner they are likely to be paid. This is called the ‘recency effect’, a term used to describe the human tendency to remember recent things they have experienced. In cash-flow terms, sending an invoice out immediately after delivering the product or service is best. That’s when the value of delivery is still fresh in the customer’s mind – making them most receptive to paying. Most people tend to remember and act on tasks that are at front of mind; the sooner a client receives an invoice, the sooner they’ll add it to their next pay cycle.
Offer alternative payment methods
Different sectors prefer alternative payment methods due to the nature of their business. Not all clients are the same and understanding their different needs can help iron out their unique requirements. That often means offering different payment channels, including online methods like bank transfers, credit cards, etc. It may also involve offering different options like adjusting credit terms to better suit a customer’s financial processes. Customers will pay faster if they can use their preferred method in the least hassle-free manner.
Invest in technology
Financial management software does not need to be complex and expensive and business owners would do well to find attractive options designed to meet both their budgets and needs – many which are cloud-based, automated and available via monthly subscription fees.
In order to be scalable and accommodate future growth, growing businesses can benefit from a cloud-based system which, besides financials, also covers inventory and CRM systems, allowing invoices to be generated automatically, recurring invoices sent to existing customers, and email alerts for payment are issued.
The benefits delivered by cloud-based ERP can help keep track of every aspect of the businesses including financials, purchase history, expenses, and inventory and go a long way to provide real-time operational visibility so leaders can make informed decisions about their business.
By Graeme Burt VP & Chief Commercial Officer– Oracle NetSuite, JAPAC