How to identify customers who can’t pay their invoices

5 tips to reduce unpaid invoices

Cash flow issues limit a business’s capacity to grow and, in some cases, to operate. But there’s more at stake here than the health of individual businesses. The Australian Small Business and Family Enterprise Ombudsman recognises that small businesses provide employment for approximately 4.8 million Australians. So when customers and clients are late on their payments, then, it can directly affect the livelihoods of those employed.

“If small-to-medium sized business start falling off a cliff, economic conditions in Australia will certainly follow, so it’s incumbent on big business and governments to follow best-practice and pay their bills on time,” wrote Kate Carnell, Australian Small Business and Family Enterprise Ombudsman, in The Sydney Morning Herald.

She describes chasing invoices as “a drag on productivity” with broad-reaching consequences.

“Chasing overdue payments causes stress and anxiety; it’s a waste of time and it fundamentally stymies growth by forcing the business to focus on surviving rather than thriving.”

 

The Ombudsman also found, that the issue isn’t just limited to a single industry sector; it appears to have become a systemic problem in Australian corporate culture and throughout the Australian economy.

So, how can you best identify customers who won’t pay their invoices?

 

“Some big companies just tend to change the payment rules from the widely-accepted 30-day-term and extend them to 60 days or beyond to suit their own financial needs,” wrote John Chapman, the Small Business Commissioner for SA, in the Adelaide Advertiser.

 

Recently, Telstra CEO Andy Penn made headlines as he pledged to pay small business invoices within 30 days. He is doing what many of the nation’s biggest business fail to do. But, are small businesses playing at the same game and drawing out terms of payment?

 

According to recent research by cloud accounting software giant Xero in conjunction with CoreData, 71% of businesses said their suppliers’ payment terms were often longer than their own, or they weren’t adhered to, leading to further major problems for business.

The same research showed that many small businesses are happy with payment terms of less than 30 days, but say anything longer than that is unworkable.

Studies show, too, that the more overdue an invoice is, the less likely it is to be paid. This means, when it comes to invoices, it’s crucial you’re on top of managing this function of your business. Here’s how:

 

Regularly check your clients’ credit health. 

It’s crucial to be vigilant when it comes to the financial health of your clients. Build systems and processes that do just this – like regular credit checks. This way, you’ll be able to quickly identify or potentially predict when an invoice is likely to become outstanding.

 

Set the right terms

Limit the credit terms you extend to certain clients and keep your terms simple and easy to enforce. For example, negotiate partial payments at agreed milestones with an initial deposit.

 

Know their payment history.

If they consistently pay late, this could suggest cash flow issues and it might be worth taking another look into their credit history. Catch the issues before more credit is extended and come to an agreement that works for both businesses.

The key here is to be alert not alarmed. As soon as anything seems amiss, it’s important to escalate it through the systems and processes you’ve put in place to safeguard your business, starting with that all-important phone call.

 

Stay up to speed with industry changes.

Keep your ear to the ground with the various industries your client relies on for their own cash flow. If, say, their biggest client makes headlines for making lay-offs, there’s a potential danger that this too will affect the businesses cash flow. Monitoring industry trends may also give you a good indication of your clients’ current or future financial health.

 

Engage a professional debt collection company.

A professional debt collection company encounter, and more importantly, overcome habitually outstanding invoices on a daily basis. Recovering debt is their specialty. By leveraging the latest industry technology and proven collection techniques, they are solely designed specifically to achieve the best outcome – which is recovery money owed to you.

The sooner you engage a debt collection specialist, the more likely it is you will see the invoice settled. Prevention, though, is better than cure. So working with a debt collection agency to handle all of your accounts will ensure you’re in the best hands when it comes to identifying customers with financial difficulties and reducing unpaid invoices.