Small Business Debt Recovery: How to recover debts faster

Small businesses are especially vulnerable to payment delays and in Australia, there are no current laws regarding maximum payment times. More than half of small businesses reported that 40% of their invoices were paid late in 2016.

There may be change on the horizon however, with the Small Business Ombudsman currently lobbying hard for legislation to help protect small businesses by regulating payment times. But whilst we wait for this to happen, what can be done to help you get your invoices paid faster?

Accounting giants Xero and Quickbooks have undertaken research and found there are some simple ways you can ensure your invoices are paid in a more timely manner.

Quickbooks reports that large US payment processing company Due.com analysed a quarter of a million invoices to discover what factors influence payment time. Some of the results are startling:

• invoices bearing your company logo increase your chances of being paid by 300%.
• the less names you include on the invoice, the higher the likelihood of someone taking ‘’ownership’’ of the payment
• including a polite ‘’thankyou’’ on your invoice increase your chances of being paid by 5%
• a quarter of invoices analysed did not include a due date

Always make sure you adhere to the requirements for issuing valid invoices set out by the Australian Tax Office, as there is specific information which must be included. You should also consider these useful tips:

• Invoice payment terms need to be well articulated and legally enforceable. They should be included in writing on everything from initial quotes and estimates, to contracts and agreements, and of course on your invoices.
• Small business owners are advised to make sure to get a contract signed before credit is extended, clearly outlining all payment terms with no room for uncertainty.
• Short credit terms are recommended, expecting payment within a week rather than the standard 30 days.
• Send invoices as soon as possible, while the work performed is still fresh in your client’s mind.
• Offer an incentive or discount for early payment rather than just include charges for late payment.
• For large amounts, agree to send a series of smaller interim invoices rather than a total invoice on completion.
• Don’t underestimate the time you will be spending on invoicing and chasing outstanding payments. Consider the use of software that can automate many of the follow up processes for you.
• If necessary, engage a professional debt collection agency to quickly resolve any outstanding debt you have.

There are many tools and strategies available to help small businesses maintain a positive cash flow. By implementing these simple tips, you can reduce the amount of outstanding debt you have and the time spent on chasing late payers.