Late payments are one of the biggest reasons for the cash flow struggles of the average Australian small business. Speak to any owner, and chances are they’ll have a story about an unpaid invoice, time spent on the phone chasing debtors and bills they simply give up on, Angus Sedgwick, CEO of OptiPay, explains how you can stop the bad debt train in its tracks.

A recent survey found more than a quarter of Australian businesses (27%) lose up to $6,000 a year due to late payments with 11% declaring losses of between $12,001 and $30,000.

Chasing late invoices takes a toll on small business owners both from a financial stress and mental health perspective. Often they delay tough conversations with their customers because they fear offending them or losing their future business. But business owners need to remember that everytime they sell goods or services to their customers on credit terms, they are taking credit risk over their customers ability (and willingness) to pay for those goods or services.So how can you get on top of unpaid invoices?

Unfortunately there is no quick trick to collect your debt successfully.

However, here are some tips that may help.

1. Set Expectations 

The clearer you are with your customers from the beginning the less chance there is of issues arising with late payments down the track. Communicate your credit terms and what you require from them after you complete the work or deliver a product.

2. Be Proactive

Make sure you enforce your defined terms every time. If your customer pays late and you do nothing they may push the envelope further in coming months. Don’t delay acting on unpaid debts. Send reminders to your customers a few day before their payment is due. If they still haven’t made payment by the due date follow up again with a phone call, email or automated accounting system notification. This signals to them you are serious about the invoice and gives them a chance to explain why they are late. Sometimes they have simply forgotten other times they have “deliberately” forgotten in order to test the waters.

3. Know the Facts

Make sure you know all the details before you begin chasing an unpaid invoice. How much does your client owe and when do they usually pay? Is this the first time they’ve paid late? Have they actually received your invoice? If they claim they haven’t received it or don’t have the correct details make sure to send these through and then confirm receipt. Agree on a new payment date and send it through in writing so there is no confusion. Follow up on the phone if they still haven’t paid. Difficult customers may need multiple reminders so be persistent while remaining as polite and friendly as possible – “the squeaky wheel gets paid”.

4. Switch to E-Invoicing

Electronic invoicing (e-invoicing) allows you to automate your invoices so they link between your accounting system and your clients. It makes it easier for your business to be paid on time as reminders are sent automatically, payments are made online and it reduces the risk of manual errors with paperwork. It’s also easier on small business owners too as it takes the legwork out of issuing the invoices too.

5. Implement a Late Fee

Implementing a late fee is something for each individual business owner to decide whether it’s the right fit for them. It’s straightforward to implement and it is an effective method to discourage late payments. It lets your customers know you’re serious about the due date for invoices and have a process in place to encourage them to pay on time in the future. It is, however, a delicate balance between maintaining a good relationship with your customer, hence why it’s important to always know the reason why a bill hasn’t been paid.

6. Seek External Help

There are a number of options available to small business owners who are struggling to keep up with their invoicing. Alternative cash flow solutions such as invoice financing may help to unlock the cash from the invoices whilst waiting for them to be paid.  This is a way of being able to instantly unlock that cash that’s held up in those unpaid invoices. Other owners may consider the use of professional debt collection agencies to do the heavy lifting of unpaid invoices. This can be a good option for time-poor small business owners that would be better allocating their efforts elsewhere in the business.

At the end of the day there’s often no quick fix when it comes to unpaid invoices. Monitoring and maintaining sufficient cash flow is a constant struggle for many small business owners. Remember that you are not alone with this – most SMEs will encounter this issue at some time in their journey. There is a tightrope to be walked of being firm with payments but also preserving your relationship with your customers. The benefit of getting it right is having the cash flow to help your business grow.

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