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Late Payments are a Big Burden to SMBs

By July 7, 2022July 14th, 2022No Comments

Having a Tech Stack for Collecting Payments is Essential 

man overwhelmed by work

More than half of SMBs payments are collected late. 

Given that more than half of SMB payments are collected late, small businesses should consider adopting a Tech Stack to handle the complexities of multiple payment types and receivables, (see the graph below). In our previous blog, Tech Stack I, we discussed three reasons why SMBs should invest in a financial Tech Stack. This current blog, Tech Stack II, focuses on how small businesses can boost cash flow and revenue by being more proactive on collecting outstanding payments from customers using a Tech Stack. Check out how in five easy steps below. 

No one likes to chase down customers to pay their invoices.  

Hounding customers for payment is a drag. With 68 percent of SMBs still performing collections manually, there is an added cost to collecting payments and productivity. Collecting late payment costs an average of $7,000 per year in lost revenue and productivity. It’s more important than ever to establish a Tech Stack to help prevent late payments happening to your business. 

Late payments

Graph courtesy of Tally Street by Rootworks

Five steps to improve collection performance.  

Business to Business (B2B) payments, in particular, are prone to late payouts and payment types that don’t always fit the cash flow needs of businesses. To make the process smoother for small businesses, we’ve broken down five simple steps business leaders can take to improve collection performance and identified several technology solutions to help tackle them. 

  1. Accept electronic payments. If you are not currently accepting electronic payments, you should consider getting set up with a QuickBooks® Merchant Services account that fully integrates into QuickBooks. This is a critical component of controlling cash flow, so you do not jeopardize your company’s ability to operate efficiently. 
  2. Set up recurring invoices with automatic payments (Autopay). Customers can view their recurring invoice to pay it, then simply check the box to agree to the recurring payment terms, and opt-in to be charged automatically going forward. Customers will receive a receipt every time they are charged and can cancel anytime.
  3. Define credit policies and adhere to them. That includes using consistent payment terms so that every customer knows when payments are expected. Good credit policies also include penalties for late payments, which need to be applied and can later be forgiven.
  4. Remind and follow-up with customers. Making it easy for customers to pay helps and a friendly reminder never hurts. Emails and documents get lost, people go on vacation, etc., and sending friendly payment reminders before and after the due date are often all it takes to significantly improve collections.
  5. Measure performance and set goals. What gets measured gets done, and incentives help. Accounts receivable (AR) collections metrics such as Days Sales Outstanding, (DSO) – the average number of days taken by a firm to collect payment from their customers after the completion of a sale; Days Beyond Terms, (DBT) measures how frequently a business makes late payments to its suppliers; and (CEI)  The Collection Effectiveness Index, the calculation of a company’s ability to retrieve their accounts receivable from their customers. Tracking and reporting these metrics are ideal ways to set goals and reward teams for hitting them. 

There’s an App for that. 

The frequency and financial impact to a company for late payments is staggering. Seventeen percent of payments were collected more than 30 days after the due date. For a $10 million business that means $5.7 million was collected late and $1.7 million collected very late – which could have been used to accelerate investments or hiring. You can save yourself lots of time and stress by considering a third-party application that fits the need of bill pay and is a worthy addition to any accounting Tech Stack. Here are our top picks: 

woman looking at devices 

  1. Tally Street (now part of Rootworks) – Sales and Accounts Receivable (AR) metric information and forecasting; easily and safely connects to QuickBooks; automates client records; shares reports. Clients receive more than financial statements. They get monthly and weekly insights into customer lifetime value (LTV), sales trends, concentration risk, product pricing, and collections performance in branded reports.
  2. CashFlowTool  The cash flow software that seamlessly connects with QuickBooks Online and QuickBooks Desktop. There are no surprises with cash flow as this cash flow management and forecasting service instantly tracks your cash flow today and in the future for the financial health of your company.
  3. QuickBooks Payments Did you know that invoices are 3x more likely to be paid on the day they’re sent? Get paid faster using QuickBooks payments. If you are not currently accepting electronic payments, we can help you get set up with a QuickBooks® Merchant Services account that fully integrates into Payments are automatically matched with invoices no matter how the customers pay.
  4. CollBox CollBox is Accounts Receivable done for you. In just a few clicks, businesses can send their past-due invoices to be serviced by A/R professionals. From soft-touch, consistent follow up, to escalation to collections, CollBox is everything a business needs to get paid for their hard work.

To Sum it Up 

Today, small and medium sized business-to-business companies need to be more aggressive than ever in their use of technology. It’s important to note that nearly 70 percent of businesses are still collecting payments manually. As such, even upstarts can quickly build up a strong head of steam – but only if they can manage to collect more than half of their payments on time. SMB’s don’t have to go it alone. An outsourced accounting and bookkeeping company, like One 8 Solutions, is expert at helping you select, integrate and manage the best Tech Stack that suits your needs for collecting payments. Paying on time and collecting from customers reliably is paramount for any B2B business. 

Contact Us  

One 8 Solutions is here to guide you with both your Tech Stack I & II from onboarding to managing ongoing accounting and bookkeeping services. Click here to schedule a complimentary Zoom consultation.