The key to getting paid: Why late payments happen & how to fix it
Despite the Prompt Payment Code and now-in-force Duty to Report legislation, smaller suppliers continue to complain about larger, more powerful enterprises or government institutions not paying them on time. In fact recent research by Zurich revealed that more than half of Britain’s small to medium sized enterprises (SMEs) are currently waiting for overdue bills to be settled, with an estimated £44.6bn outstanding in late payments.
For enterprise organisations, cash application and cash reconciliation are challenges that grow relative to the size of the company. This is likely given the complexity and sheer volume of invoices and payments. Unsurprisingly, over half of all respondents surveyed by the Aberdeen Group cited improving cash flow / forecasting and reducing receivables processing time and cost as their top two objectives.
This research was further supported in Bottomline Technologies annual index, the ‘UK Business Payments Barometer 2017: Payments for a New Economy’, which found that 45 percent of SMEs cited slow payer ethic as their single greatest challenge to getting their invoices paid on time. For larger companies, the biggest receivables challenge was invoice dispute, which not only takes up credit control time but directly restricts cash flow.
So if organisations of all shapes and sizes face a myriad of challenges when it comes to collecting cash, what can businesses do to help shift this problem?
Understanding some of the underlying factors leading to late payments (such as lost invoices, disputes, or unnecessary delays), and the cash collection approaches that are proving to have the most success, can help when it comes to taking action.
Encouragingly, the report highlighted collaborative relationships as the most effective means of dealing with accounts receivable issues (48%), in contrast to traditional debt collection based on value or due date (31%), automated Direct Debit (27%) and supply chain finance (19%).
If almost half of all businesses surveyed rate customer collaboration as the most effective method, what quick wins can companies put in place to support this?
Firstly, these findings link very much to the digital economy and a migration to real-time quick, repeated commerce. This means finding easy ways to connect to a call centre to discuss a debt or organise a payment plan. It means looking for simple approaches to gain insight into how customers are responding to the invoices received and what actions they’ve taken.
Technology makes it far easier for both parties to track and trace transactions, record discussions, and save agreements. Businesses can monitor the patterns of individual customers and proactively identify where to invest their time and effort when looking to reduce Aged Debt and Days Sales Outstanding (DSO). Using technology provides enhanced visibility and control – which paper-based systems and processes and even emailing PDF’s cannot fully deliver – helping you to spot payment trends, identify where best to deploy resources, and save time and money.
This proactive approach not only encourages customer collaboration but provides greater and early visibility into cashflow and deeper insight into payment trends. The result is a tactical increase to operations and a strategic improvement to business processes.
We see this as a real shift away from traditional debt collection.