As a small business, late payments can have an adverse effect on your operations.
It is estimated that there is almost R250 billion worth of late payments owed to South African small businesses which has major implications on the cash flow of these organisations.
This figure has been influenced in part by the COVID-19 lockdown that has battered the finances of many companies.
If you are running a small business and are struggling under the weight of late payments, Sage has several tips for you.
Start with the customer
You should understand each of your customers well so you can ascertain how likely they are to make early, on-time, or late payments.
There are three main types of customers as outlined in Sage’s Art of Being Paid toolkit – perfectionists, plate spinners, and procrastinators.
- Perfectionists – These customers will nitpick on small things such as missing PO numbers or incorrectly-formatted invoices to avoid payment.
- Plate-spinners – These customers have a many things going on simultaneously, meaning they can forget to pay you because of all the other responsibilities they have.
- Procrastinators – These customers know they’re late paying and are often doing it intentionally.
Sage’s Art of Being Paid toolkit helps you determine which type of customers you have and how to deal with each of them.
Through this resource, you will be equipped to get more customers to pay on time.
Even if you implement the best possible strategies to deal with late payments, you will still encounter this problem occasionally.
Therefore, it is important to develop cash reserves to help you continue your operations without running out of capital.
Octavius Phukubye, the founder of successful entrepreneur empowerment business Brillianaire, is a firm believer in this strategy – and recommends that your business saves ten percent of all invoices as cash reserves so you always have enough cash flow.
Phukubye also recommends you integrate systems and cloud accounting solutions, which makes it easier to monitor your finances and track potential late payment scenarios.
In addition, Sage recommends you make payment simpler for your customers so it is easier for them to pay on time.
You can do this in the following ways:
- Invoice accurately.
- Streamline the payment process.
- Communicate clearly.
- Implement reminders.
- Automate processes.
This reduces the stress you face when following up on late payments and improves your relationship with your customers.