Do you find that your customers are regularly paying your invoices late? Whilst this can be a nuisance, it can also be quite detrimental to your business as the flow on effects can result in you accordingly paying your own creditors late.

So, what can you do to avoid this problem? Here are some tips that may assist in helping your clients to pay on time:

  1. Send out friendly automated reminders from your accounting software;
  2. Offer incentives for early payment;
  3. Have an honest discussion with your client to see what the cause of their regular tardiness is and how you can work together to overcome it. Don’t be shy to let them know how it is affecting your business. If they value your relationship, they will do their best to accommodate you. If they don’t on the other hand, perhaps it is time to consider cash on delivery or in the most extreme circumstances, reassess the relationship altogether.

Sometimes, it may not be possible to solve such a situation with the above means because the customer in question may be very important to your business so upsetting them or terminating your relationship with them may not be an option. However, this does not mean you should do nothing. Inactivity in this regard has several implications such as (but not limited to) the following:

  • Your own cash flow may be adversely impacted limiting your ability to pay your own creditors, bills and staff on time;
  • If your creditors are not happy with you, this can significantly affect your ability to secure your stock or to secure it at reasonable prices;
  • If one of the creditors you can no longer pay on time is your lender, this can significantly affect your account conduct and therefore impede your creditworthiness, making it more difficult for you to secure finance;
  • If one of the creditors you can no longer pay on time is the Australian Taxation Office (ATO), you may wind up with a tax debt. In some extreme circumstances, the ATO has powers to recover any tax debt you owe directly from your business’ bank accounts and/or debtors if you are served with a Garnishee Notice.

So, where to from here and what options do you have if you’d like to maintain your relationship with your late paying customer:

  1. Receivables Finance (also referred to as Invoice Finance, Debtor Finance and Factoring) – depending on your industry and how you invoice your customers, you may be able to take advantage of Receivables Finance to alleviate some of your cash flow pressure. Such an arrangement is usually secured by the invoice you are seeking to finance and therefore, property security is not always required.
  2. Overdraft – a traditional overdraft can also assist in filling a cash flow gap, however generally, lenders may require property security to secure an overdraft facility;
  3. Short-term Cash Flow Loans – these can be very quick to establish and designed to be a stop-gap-solution for immediate cash flow requirements. They often do not require any property security to access funding and very little paperwork to get the ball rolling.

It is important to note that there is no one-size-fits-all solution to cash flow issues. It is very much a case of understanding your business, your clients and your objectives to get it right. A great place to start, is to conduct a cash flow forecast exercise, identify your business’ cash flow pressure points and customers of concern, then CONTACT US to discuss your finance options.

Doing nothing could really hurt your business, so get on top of cash flow issues before they arise, or at least as soon as you feel there is a problem.

Disclaimer: The information provided herein is for general information purposes only and does not constitute specific advice. It should not be relied upon for the purposes of entering into any legal or financial commitments. Specific advice should be obtained from a suitably qualified professional before adopting any investment/financial strategy.