By Faye Duncan, payment solution specialist for Total Processing, an online payments company with a recurring payments service, based in Manchester UK.
You may remember last Christmas’s payment crisis — which impacted up to 400,000 British businesses. Well, it seems that problem has not gone away.
There is still estimated to be a £20 billion late payments crisis affecting UK small businesses, despite it being a huge problem and well known over a year ago. The reason? The Federation of Small Businesses (FSB) has said that a culture of acceptability for late payments is to blame — and that the laws are currently too slack and do not really take supplier interest at heart.
Why do we care about getting invoices paid on time?
Late payments act as a hindrance to productivity and growth, and small businesses in general are more vulnerable when they do not get their payments on time.
Late payments create cash flow problems — and as a result businesses may take on additional loans to try and make good on the debt they have incurred. Unsurprisingly, this can delay reinvestments into important areas for businesses such as digital transformations or staff training. Late payments can make planning impossible, and waste valuable time and resources.
How businesses can fight back against late payments culture and get their invoices paid on time.
With that being said, how can business try to make sure they don’t suffer from delayed payments this year, and onwards?
Well, one way to prevent this problem is through automation. An automated invoice management software or subscription model can make online payments easier and less stressful for both sides. With automation, recurring invoices (and therefore recurring payments) do not have to slip through the cracks. To further streamline the process of collecting this essential revenue would be to set up secure online payment systems to speed up the general process — using high-security anti-fraud technologies such as fast online verification and e-signatures.
The benefits of recurring payments in counteracting the culture of late payments
Recurring payments aren’t limited to certain industries, they can be used in all sorts of businesses. They are especially effective if you have customers who tend to buy the same goods or services from you over and over again.
An indirect other benefit of recurring payments include customer retention. If you offer easy monthly, or multi-monthly, or annual recurring payments, and you offer a great service, then customers are more likely to stick around and keep paying you for what you offer.
This is because the subscription model essentially operates as an out-of-sight, out-of-mind approach which removes the conscious act of having to pay for your customers. A study by Harvard Business Review found that customers who stick around even tend to make higher purchases over time.
And while recurring payment models won’t eliminate all late payments, they do drastically reduce them where it counts.
Things to keep in mind when it comes to getting your invoices paid on time
Sometimes its not your customers who are to blame for late payments. In fact, it’s common for businesses to actually forget to invoice their clients — particularly if the company is going through a phase of rapid expansion. So it might be worth checking if you’ve sent out the invoices in the first place.
There are reports of businesses seeing massive upturns in revenue after implementing an automated subscription model, as it does away with the risk of simply forgetting about billing clients to begin with.
And for another great advantage of recurring payment models: they give you a predictable revenue. This will allow your business to forecast the income you will get, and to use this money to invest wisely to help with progression in the future. Plus, it means no more (or at least fewer) sleepless nights.
Finally, automated software does away with the manual administrative paperwork. It has been estimated that SMEs spent 100s of days out of the year on admin work alone, with much of the time spent generating and processing invoices. With an automated software this work is done automatically, freeing up more time for you to work on improvements to the business.
Start-ups and SMEs are the most impacted by the culture of delayed, late payments — and these are precisely the type of businesses that often do not have a large safety net of cash to help them get through the Christmas period. Many business owners have reported serious mental health issues because of this. Including sleepless nights and even depression.
Take actions to guard against this. Set up a recurring payments or subscription model to help you take payments quickly, and on time whenever they are due. This will massively decrease the amount of late payments, and improve your cash flow at the same time, while improving customer retention and giving you more accurate forecasting models going forwards.