Customers paying their dues late is something that every business owner encounters. According to the statistics, 54% of Small and Medium-sized Enterprises (SMEs) expect their payments to arrive later than the due date. The average time for the payment of an invoice is usually six days, but 20% of the time, it can take customers more than two weeks to pay off their dues. Businesses can expect their payments to arrive after a month 33% of the time. 20% of these late payments will likely arrive in the business owner’s pocket 60 days after they were due. According to another survey, only 6% of manual invoices are ever paid within 30 days, while the other 94% can take as much as 30-60 days.
Probable Causes for Late Payments:
When exploring the probable causes as to why customers might delay or decide to withhold payments, we land upon the following arguments:
Experts believe that about 11% of invoices fail to reach the actual customer. This could be because of faulty street addresses or email addresses which might result in lost invoices. But, the likelihood that a bill was delivered to the incorrect department or individual is still much higher. The key to getting paid on time is knowing where the customer wants to receive the invoice. Emails with invoices should only be sent to email addresses provided by the customer. This is because the customer might have a separate email to receive all the bills and invoices.
The customer’s wish of including more people in the invoice must be catered to. Another countermeasure to avoid late payments is to not rely on mailing invoices. This is because it is easy to misplace paper records.
Incomplete or Incorrect Information
Working in accounts is hectic, and staffers there barely get time to breathe. This is why they do not treat correcting billing data or tracking down bills as their top priority. According to experts, roughly 61% of all invoices are incorrect and result in late payments. This creates a frustrated customer because no one wants to receive incorrect bills.
An easy fix for this issue is, using centralised data access and AP automation. These measures will help the business eliminate such problems while ensuring data accuracy.
Disputes in Billing
No one likes receiving incorrect bills that might contain the wrong pricing or products that were not shipped. Issues like this can cause the customer to become frustrated with the business and withhold payment until the billing issue is fixed. This disrupts the business’ short-term cash flow. Frequent billing disputes with customers create a bad reputation for the business. This creates severe customer attrition, which results in the business’ long-term cash flow getting hurt as well. An easy fix for this problem is by using automated invoicing. Automated invoicing ensures that the correct pricing is applied to every order and the customer is only charged for the actual quantity and kind of items shipped. Customers charged in increments require invoices on a predetermined schedule. This is not an easy task to perform particularly if all the records are in the form of spreadsheets. This proves to be risky as it can cause customer annoyance if the invoice is delivered early. Early invoices lead to more disputes and further prolong the payment time. AR is the best way to combat this problem. They can bill the clients timely by recording, verifying, and resolving account discrepancies. They can also aid in receiving the correct amount from customers by providing all the necessary support to them in the process.
Looks play a key role in deciding which bills to pay first. In most cases, invoices are made on templates that offer very little room for customisation. This inhibits the business from adding information that is relevant to the customer. Thus, a business relying on such templates and using the one-size-fits-all approach can expect delays. For example, an itemized account of the supplies used on a project, along with the number of man-hours worked and the rates charged, may be required from a construction business. Any promotional discounts that are added must be notified within the invoice alongside the terms and duration for this offer as well. If a business fails to provide such key information to their customer, they can expect their invoice to be paid later than expected, which might hurt the business’ short-term finances. Unprofessionalism on the seller’s end is also on display when the invoice turns out to be poorly formatted, giving the impression that it is fraudulent, and the slightest hint of fraud can result in the customer withholding payment. All these issues have a simple fix in the form of a consultant who can create a custom invoice template. In addition to this, finding a system that provides tools for creating unique invoices can also be used to prevent either of these issues.
The customer’s own AP procedures can also have a negative impact on the payment of invoices. For example, if the customer’s finances allow only monthly payments, then a delay of 2 to 3 weeks is expected. Changing payment cycles to better suit the business’ convenience is unlikely. Therefore, it is best to provide the customer with alternatives. Accepting payment in the form of cheques is a great way of accelerating the payment process. If the payment is recurring, like in the case of an outstanding bill for a subscription, payment methods such as credit cards, wire transfers, and ACH transfers can fast-track these payments.
Impact of Late Invoice Payments
Time, financial resources, and human resources are not the only things that are wasted in chasing these late payments. According to studies, 30% of Small and Medium Enterprises (SMEs) face a severe negative impact of late payments, which hinders their investment and even their operations. In Europe alone, 1 out of 10 SMEs faces late payments, which according to the UK government, amounts to approximately £23.4 billion or $27.7 billion. SMEs in the United States of America have it worse because they, on average, lose 51.9% of the total value of their B2B payments, all the while not having the guarantee of even receiving those payments within 90 days after the due date.
Following up with Unpaid Invoices
It takes a lot of time and resources for a company to follow up on late payments. Some businesses give up while others spend a fortune recovering their payment. Surveys suggest that more than 40% of businesses can not follow up due to limited time and resources. The businesses that do follow up on their payments have to spend a lot of resources. A study suggests that in the UK alone, the chasing process for payments amounts to £2 billion. Statistics reveal that 12% of SMEs hire employees especially for chasing late payments. A study concluded that owners of SMEs spend about 15 days each year chasing late payments. At the same time, another study suggests that SMEs spend 4 hours each week chasing late payments.
Statistics show that late invoice payments are actually on the rise in different parts of the world. Some of the countries where this issue is on the rise are as follows: Hong Kong is facing an increase of 4% in late payments alongside Russia, the United Kingdom, and Poland. The Philippines has shown to have an increment of 5% in late payments. Thailand is now at a staggering increment of 16% in late payments, with India being ahead at an increment of 17%. Canada takes the prize when it comes to late payments. The Canadian government reveals that 70% of all invoice payments are late. Their southern neighbour, the USA, is facing an increment of 39%-45% in late payments. The African continent is also seeing a rise in late payments. Statistics show that 31% of the invoices are late in the African continent. South Africa, however, tops the late payment percentage at an astounding 63.9%, an increase from 15.3% in 2021.
What Is The Solution?
Manual processes, formatting issues, and errors can all delay payments and have a negative impact on cash flow. So, to avoid this from happening, it is necessary to look for a solution. And what is the solution, you ask? The solution is quite simple. NetSuite Invoicing. We discussed how automation was the fix for all the problems. Well, NetSuite does just that. It eliminates the time-consuming manual processes of invoicing customers and managing payments. It provides vital data to employees in a hassle-free and organized way, allowing them to create invoices easily and accurately. A database like NetSuite makes access to customer account information and order details simple and easy. The easy accessibility of this data avoids the need for duplicate data entry resulting in fewer errors and saving a ton of time. NetSuite also allows businesses to make customizable templates. This can help the businesses in making invoices that cater to each customer’s needs. Payments can also be fast-tracked using NetSuite’s Payment Link feature. This feature provides the customer with a link within the invoice to pay their bill.