Ask FundThrough: Why Does It Take So Long to Get Paid?
If you think that it’s taking a long time for your invoices to get paid, you’re probably right. We break down a few of the most common reasons why small business owners don’t get paid on time and give you some quick ways to break that cycle.
Studies in the U.S. show that on average, invoices get paid 14 days late. As a business owner in the field, we’re sure you’ve encountered much, much worse than that.
When invoices are consistently paid late, it can have a devastating impact on small business operations. You’re unable to hire staff, it slows down expansion plans, you can’t invest in research and development, you can’t fulfill orders, and the list goes on and on.
There are a few common reasons why small business owners don’t get paid on time and understanding them can bring you one step closer to running a successful business, with predictable cash flow.
1. Relying on large business/government contracts.
Large companies and government departments operate on a turnaround invoice payment cycle of 30/60/90-days. You need to understand this reality and make sure that you’re not dependent on any one client. This ensures that you have enough capital to operate your business.
2. Your client is surprised by the amount on your invoice.
Be clear and upfront about the price of your products and the fees for your services. If the client asks for something out of scope of the project, instead of doing the work and charging for it, let the client know it’s beyond the scope of the agreed upon work and how much more you will charge for extras. Communication is key in this instance.
3. You currently accept only one payment method.
These days accepting payment only by cheque can slow down the speed at which you get paid. Allow clients to pay by direct deposit, PayPal, and you can also accept payment using Square register and other forms of electronic payment systems to give them more options that will get you paid faster.
4. No accounting policies in place.
Payable upon receipt is often interpreted as we have some wiggle room, so your invoice is set aside. But if you also include terms such as Net 10 days and 8 percent interest charges on late payments, the accounts payable department will pay before any interest charges accrue. Policies can dictate when payments are due, initial down payments, payment methods, late payment charges, and incentives for early payments.
5. Not using cloud accounting software.
Operating a small business often means that you have to be a “Jack of All Trades” and keep track of several moving parts at once. Cloud accounting software takes some of the load off, coming with features such as recurring billings and payment reminders.
6. Not knowing who signs off on the invoice and who processes it.
You don’t do business with a company, you do business with a person. Relationships are at the cornerstone of every successful business. Get to know the names of the people who sign off on your invoices and process the payments. Develop a relationship with them so they recognize your invoice when it comes in.
7. Not having countermeasures in place.
Understanding the reasons why it’s taking you so long to receive payment for your outstanding invoices enables you, as a business owner, to take the appropriate countermeasures to ensure that your cash flow isn’t affected.
In addition to the above items, one of the simplest things you can do to ensure that your business always has working capital on hand (regardless of when your customers pay) is to use an invoice financing tool like FundThrough, which enables you to access the funds locked in your outstanding receivables in as little as one business day.