Late Payers On The Increase As Scarcity Bites
Many New Zealand SMEs are noticing an increase in late payments over June and July, and one accounting firm suggests that the trend may be influenced by the scarcity of affordable goods, like technology and equipment, which is pushing up prices across the board.
Vinay Iswar, the managing director of Auckland, chartered accounting and business advisor firm BetterCo, says the firm is hearing reports of a sharp increase in slow payers due to several factors, but shortages are one of them.
"Affordable laptops are not widely available right now, but if you want to buy a more expensive model, you can. The same applies to vehicles and other items, so people are paying more, which puts pressure on cash flow.
"Some have the money, but, from some of the conversations we have had, they are choosing to invest elsewhere either in property or other business start-ups. A few are alarmed at warnings of interest rate rises and are trying to hold on to their money for as long as possible."
Iswar says it is a perfect storm where a higher than average number of people choose to spend their money on other things rather than pay their bills.
"On average, New Zealand businesses pay each other roughly two weeks late, so it is always a thing, but there is a prevalence of it at the moment."
Shorten payment terms
Iswar suggests businesses struggling with late payers change their payment terms to seven days instead of the 20th of the following month.
"If you issue an invoice on the last day of the month, make it seven days. That way, if you get paid two weeks late, you will at least have the money by the 20th of the month, which is when you wanted it.
"Should the unpaid invoice drag on into the following month, it becomes more than a month late, and that gives you a stronger reason to insist on immediate payment."
Companies intending to change their payment terms should advise their clients of the change ahead of time.
It is possible to put clients on a direct debit quickly and easily. Apps like Go Cardless integrate with Xero to send clients a link to authorise a direct debit immediately.
"Avoid the old school snail mail form that your client has to sign; they are onerous and slow. It can all be done digitally in a matter of seconds, and we find that those with direct debits get paid first while those that rely on bank transfers wait longer."
Make it easy
A key to getting paid quicker is to make it easier for your clients to pay because sometimes the reason a payment is late is due to the time and effort it takes.
"Offer your clients several ways to pay. These may be direct debit, a credit card link or the traditional bank transfer. The traditional bank transfer method usually requires three or four steps, and it's a pain – take the pain out of getting paid."
Iswar says that a business that changes its payment terms or chases up invoices should not fear 'losing the business' because the client still needs what you have to offer.
"By changing your payment terms and switching to direct debit, you are offering your client convenience and protecting your own business. Concentrate on 80 per cent of your clients who do pay their bills and get rid of the bad eggs."
For more information: https://www.betterco.nz