Late payments are the ghost that can haunt any business at any point, especially if they struggle with compelling accounts receivable management. In the past year alone, 82% of small businesses in the U.S. have experienced late payments. There are short-term and long-term effects of late payments that can bleed a company so slowly that the ramifications only reveal themselves when they are past resolution. Let’s look at some of the issues caused by late payments and then move on to how to handle late payments.
Cash Flow Bottlenecks
The first thing that can get choked by late payments is your cash flow. Small businesses often rely on cyclical revenue, where they sell services or goods and use that money to manage their expenses, stock inventory, and pay their employees. Late payments create a bottleneck where the cash flow depletes, causing issues in efficient and timely payments to vendors, employees, and business expenses.
Increased Costs
When you don’t have the funds to manage your business, you must incur additional costs to keep it steady. You will also face additional late fees, interest charges and collection costs, which can affect your bottom line.
Lost Revenue
If late payments turn into no payments, the business can lose revenue. Some customers decide not to pay, which means that the business will directly lose money and cause further financial stress.
Delayed Growth
A business needs funds to grow and venture into new projects and possibilities. If there is a chokehold on your revenue and late payments pile up, your operations can halt, and you lose productivity because of a lack of funds. You can’t start new projects by hiring new staff to increase productivity, which can lead to significant business losses and even customer and staff retention.
Strained Vendor Relationships
A weak cash flow means vendors and suppliers will not get paid in time, causing additional bad will within your hard-earned vendor relationships. They will be hesitant to work with you in the future and could cause ill-repute in your industry with their feedback. Your production challenges will arise without good vendors and suppliers supporting your business.
How to Handle Late Payments?
At the very core of it, late payments are an accounts receivable management issue. If small businesses don’t keep a keen eye on their AR and how it affects their cash flow, they will run into problems with cash flow and low revenue. There are various industries where it’s harder to compete with big businesses, and small businesses need a robust approach to compete against big players.
The healthcare industry has smaller practices, clinics, and public offices that need help managing their revenue compared to larger hospitals. In industries like construction and real estate, law firms or manufacturing, smaller businesses need help cementing their reputation and boosting their income because of the intense competition. Late payments can dent these businesses and are more challenging to recover unless they implement strict measures to recover them on time.
Here are some ways to handle late payments and ensure that you are on top of your accounts receivable management.
Automation
Businesses are rushing towards technological solutions to their operation issues, and accounts receivable automation software is a game-changer when handling late payments. Invest in an accounts receivable management software like CollectCo. You can get a concise and comprehensive automated system to manage your outstanding invoices, connect with your customers and manage debt recovery steadily to avoid late payments. CollectCo is built to engage customers early, prevent delinquency, and replenish your bottom line. It has automated claim organization and reminders to encourage customers to pay on time.
Timely Billing
One reason many small businesses face issues with cash flow and revenue is their lax billing systems. While this is a recurrent issue in healthcare, it is also common in other industries like manufacturing, technology, telecommunication, and retail, which can create issues for commercial debt collection. Timely billing procedures and automated systems can eliminate billing errors and fast-track collections for a smoother cash flow.
Regular Follow-up
Small businesses that rely on positive customer feedback must ensure their accounts receivable system is airtight, like healthcare. Smaller clinics and public hospitals rely on positive patient experiences to maintain their business, and regular follow-up plays an important role in that. As a small healthcare business, you should ensure you have a solid follow-up strategy so you can lessen the load of healthcare collections and save your patients from outstanding bills that burden their already vulnerable financial state.
Charge Interest on Late Payments
While this solution is low on our list of solutions, if it comes to that, sometimes consumers should be aware of the consequences of late payments, one of which is interest charges on late payments. Small businesses must maintain their operations and production and need timely payments to ensure that. Charging small interest fees can encourage customers to pay on time and avoid delayed payments. You should check your local laws around collection and consumer rights to see if you legally charge interest to your customers on specific payments to ensure you don’t violate compliance with local laws.
Self Service Portals
Small businesses increasingly rely on technology to make their operations more accessible, and automation is not limited to billing or record keeping. If you can set up a sophisticated but affordable self-service portal, your customers can make payments conveniently through various payment methods. According to True Accord, 65% of consumers prefer to use mobile devices for bill payments, while 59% choose email for debt collection communications. Customers like to have more control over how they pay, and providing a consumer portal can alleviate their stress when speaking to collectors or business representatives.
Hire a Debt Collection Agency
There are two veins to this strategy; you should involve a debt collection agency when your internal resources are strained, and collection costs and set-up can make it more challenging for you, and the other one is engaging a debt collection agency when your late payments become significantly more extensive and hurt your bottom line. Claims that are past due and keep getting older become more challenging to collect, so a debt collection agency can deploy collection specialists trained in negotiation, amicable debt recovery and resolution to get you paid without expending more internal resources. Utilizing the expertise of a debt collection agency like Cedar Financial can help you handle late payments before they become seriously past-due accounts and choke your revenue.
Practical and Effective Solutions for Small Business
So, there you have it—some foolproof ways that small businesses can manage their bottom line and avoid late payment issues. There are already various pressures on small businesses to stay afloat in an increasingly competitive market; staying on top of customer invoices and regular follow-ups can reform accounts receivable management to give them a fighting chance and fuel growth.