Non-paying customers directly affect the potential success of any business, but most especially small businesses. A growing trend in most industries is customers paying invoices late, or worse still, not paying at all. Every year accountants deal with many businesses in financial difficulty mostly because their invoices remain unpaid, or are paid well outside acceptable time frames.
The domino effect
Healthy cash flow is crucial to every business. When money is tied up in overdue receivables, owners can find themselves under pressure to meet their own expenses.
Small business owners chasing debts when they themselves cannot pay their own debts is a recipe for disaster. Pressure from creditors will make it difficult for a business owner to make effective decisions on receivables management and remain professional, which in turn may result in lost clients as well as not collecting the cash.
Check ahead
Regular follow-up of outstanding amounts is a costly exercise and poor use of time better spent on growing a business. The stress of running a business is compounded by having to follow up non-paying customers. Any business owner is smart to be comfortable with the financial health of a customer before providing credit – it’s best if they can obtain formal references from other businesses and financial institutions.
How accountants can help
If your clients let late payments become acceptable, close review of collection processes is necessary. When they have particular customers which are difficult to work with and constantly fail to pay their debts on time, ask them:
- Are you actually making a profit from this account?
- Is this the type of client you want to continue to work with?
Problems can quickly manifest when issues with paperwork cause unnecessary delays. Your clients have worked hard to generate income – don’t let paperwork issues and processes let them down.
Problem warning signs?
Indicators you can share with small business clients include:
- customers reluctant to provide information – no references, no ABN, limited documentation
- a customer disputing credit terms after goods or services have been delivered
- a customer beginning to pay by instalments invoices that would have previously been paid in full and on time
- a customer returning goods for a refund where there is clearly no fault with the product
- a customer not returning phone calls or emails where they would have previously responded
- a customer raising unfounded disputes long after delivery and beyond normal payment time.
