Why sending and paying invoices late is a bad move

Why sending and paying invoices late is a bad move

While we Australians revere the ‘she’ll be right’ attitude, there is one aspect of life where we need to pull up our little-too-relaxed socks: sending and paying invoices. Australian businesses are the world’s worst offenders when it comes to late bill payment, according to a 2016 Market Invoice report.

More than 30,000 individual invoices from across the globe were collected and countries ranked from the fastest to the slowest payers. Japan, Belgium and The Netherlands typically pay early, while Denmark, China and Ireland are relatively on time. On the bottom of the leader board sits South Africa, Mexico and then, in last place, Australia — with accounts paid, on average, 26.4 days late.

It then raises the question: Who exactly is paying up so late? Invoice Market’s recent SME Cash Flow Crisis Report surveyed 800 Australian SMEs with an annual gross revenue of less than $10 million. It was revealed that contrary to popular belief, it is not small-to-medium sized enterprises at the mercy of large corporations.

“Although there is still the perception that large companies bully smaller ones, the worst offenders for delayed payments to SMEs are actually other SMEs, which creates a vicious cycle of debt within the ‘small end of town’,” the report stated.

“Only 12% of SME debtors are large corporates and a relatively small 3% are multinationals, indicating Australia’s cash flow crisis is domestically created.”

More than 40% of the SMEs had 11 or more invoices outstanding, worth an average of $38,000 for each business. Collectively, this amounts to a $76 billion ‘cash flow handbrake’.

If this is sounding strangely familiar and you suspect this is commonplace in your business, you’re certainly not alone. While staying on top of cash flow is not always easy, there are distinct advantages to paying invoices on time:

  • It’s the right thing to do by other business owners. If you expect to be paid on time for your services, you should extend the same courtesy to your suppliers.
  • You will avoid possible late fees.
  • It will save you time and embarrassment when the supplier chases you, demanding payment.
  • It can damage your brand and reputation if you consistently pay late. You may eventually be seen as a difficult organisation that others may not want to work with again.
  • Building good relationships with your suppliers means you may be able to improve your terms, gain discounts, find out about new prospects first and opportunities for growth.
  • Suppliers want to work with financially healthy companies. If the bills are trickling through consistently late, they may assume you are having difficulties and be wary of dealing with you again.
  • It damages the economy. Businesses say poor cash flow prevents them hiring new staff and according to the SME Cash Flow Crisis Report, almost half a million Australian SMEs would employ more people if they could improve their cash flow position. This could drastically reduce or even eliminate unemployment.

In relation to the last point, it would make economic sense for businesses to send invoices on time, too. This would help other companies and their cash flow if payment were requested as soon as work is completed. The most recent figures from the Australian Securities and Investment Commission (ASIC) found that inadequate cash flow or high cash use is the most frequently cited reason why businesses fold.

Don’t feel uncomfortable sending your invoices and asking for payment promptly. You will be in the supplier’s mind immediately after a job is completed and they may be eager to tie up loose ends. And if you send invoices regularly in a timely manner, nobody will be surprised. This will also eliminate confusion that frequently appears with outstanding invoices that have snowballed into a large mess.

Additionally, it will help your own cash flow. If you’ve borrowed money for a project and neglect to invoice on time, you will continue paying interest on the loan. Contractors and freelancers also expect to get paid on time, so if you invoice promptly, you will receive the money in your account sooner, and you can pay your own people.

A standardised, organised accounting system is your best bet to ensure you have smooth business cash flow. Give REEP’s free trial a try.