What's Hot in Small Business – Chris Crum
|Chris Crum writes for Small Business Resources about what's new for small business. Chris was a featured writer with the iEntry Network of B2B Publications where hundreds of publications linked to his articles including the Wall Street Journal, USA Today, LA Times and the New York Times.|
Late Payments a Growing Problem for Small Businesses, Survey Finds
If you run a small business, chances are you've dealt with late payments from customers. You are not alone. It's an issue plaguing businesses everywhere, and it seems that we're living in a culture where more and more people find this acceptable.
Bibby Financial Services, a multinational corporation that provides financial services to small and medium sized enterprises (SME), recently released results from its Global Business Monitor, an international survey of 1,600 SMEs spanning the United States, Ireland, the United Kingdom, Germany, Poland, Canada, the Czech Republic, France, the Netherlands, Singapore and Hong Kong. Among other things, it found that late payments are a growing problem for small businesses.
"Late payment is a universal issue impacting businesses across the world," it says. "On average, SMEs wait around 34 days for payment from customers, though research highlights nuances in payment cultures in different parts of the world. While respondents in the U.S. wait just 23.5 days for payment, their counterparts in France and Singapore wait almost twice as long (45 days)."
Late payments are not an issue to take lightly. At best, they're an inconvenience when it comes to bookkeeping. At worst, they can drive a small business to its demise, especially if that business is facing other crippling obstacles (recent natural disasters in this country come immediately to mind).
A study from Xero, a New Zealand-based software company that develops cloud-based accounting software for small and medium-sized businesses, found the main reasons customers are late with payments are that they are waiting to be paid themselves, they're disorganized, or they decided to operate on their own payment terms. None of these reasons make late payments any easier to swallow, but they are an undeniable aspect of running certain types of businesses, and it's not a bad idea to plan ahead for them with cash reserves. This can be the difference between an inconvenience and catastrophe.
A study of Australian businesses found that ninety percent of small businesses that go broke do so because of cash flow issues, and points out that late payments are exactly that. The sentiment can easily be reflected upon U.S. businesses.
Other findings from the Close Brothers Business Barometer, a UK merchant banking group, include that late payments are resulting in damage to business' reputations, supply chains, credit ratings, and abilities to secure funding. A quarter of businesses are going so far as to seek legal advice in efforts to rectify the situation, but are having little success.
The more you can do to avoid late payments, the better. Focus on things that are in your power. For example, you can get outside legal help on drafting up your invoice and avoid providing your service if it has not been signed by the customer. This can help hold them accountable for payment. Make sure terms are spelled out clearly. Include language about penalties for late payments and go out of your way to highlight this information. Get your invoice out quickly and use accounts receivable software to help yourself stay on top of late payments. Follow-up often.
Completely eliminating late payments may be easier said than done, but if you make it a point to do everything in your power to reduce them and deal with them, you'll surely find your business in better health as a result.