How flexible payment terms could be the answer to your late payment problem

Having the ability to get paid quickly is key for any business, and yet late invoice payments continue to be a burden for many Australian businesses, costing around $1.1 billion per year. Not only does a stream of late payments put significant strain on cash flow but it impacts the ability for a business to take on new projects, invest in growth initiatives and meet operating expenses.

However, with the right systems, processes and payment terms in place, you can stop late payments in their tracks, get paid on time, strengthen cash flow and grow faster.

Understanding invoice payment terms

Simply put, invoice payment terms are instructions on how and when your business wants to get paid for the goods or services you provide. They involve a contract or invoice which lays out clear payment details, your preferred payment method and how the customer needs to pay the invoice.

Payment terms are important as they give structure to both parties and allow your business to better balance cash inflows with cash outflows. Including the right payment information in your contract can help ensure that you get paid on time and avoid any disputes further down the line.

Some of the more common payment terms include:

• Net 30: this one of the most popular B2B trading payment terms which simply means the customer has 30 days from the invoice date to make payment in full.
• Payment on receipt: where the customer is expected to pay the invoice upon receipt of goods/services.
• Advance payment: where payment is required before the goods/services are delivered.
• Cash on delivery: payment for the goods or services is made at the time of delivery.

Depending on your business, you might choose one of the above payment terms or create custom terms that suit the cash flow needs of your business.

Interesting read: Common invoicing mistakes that lead to late payments and how to avoid them

Adding payment flexibility to reduce late payments

In B2B trade, most businesses will offer their customers a of couple of different payment methods, such as cash payments and bank transfers. However, these options do not offer the buyer any incentive to pay on time or deliver support during times where cash flow is tight.

Offering more payment options is a good way to encourage faster payments. Options like credit card payments or buyer finance can often deliver more convenience to customers who can’t pay a full invoice on time and can help alleviate cash flow pressures. With these options, you as the supplier still gets paid on time, but your customer has more flexibility in how and when they pay.

A few other benefits of payment flexibility include:

• Improved conversions – For eCommerce platforms, cart abandonments can be reduced by providing flexible payment terms, giving customers the option to put purchases on B2B pay-later plans.
• Increased sales – With the ability to match payments to their cash inflows, your customers will likely purchase more often and at higher volumes.
• Maintained competitive edge -Stay ahead of the game and make it easy for customers to do business with you. Offering payment flexibility shows that you’re willing to accommodate their needs.

Consider offering discounts for early payment

Another way to encourage your customers to pay promptly is by offering them a discount for early payment of invoices. For example, you could offer a discount of 10 per cent if they pay within one week, or 15 per cent if they pay immediately.

Adding buyer finance to the mix can also be an effective way to incentivise prompt payment without affecting your overall profits too much – and keeping cash flow strong for both parties.

Get paid on time with Spenda

With our payment and lending services, you can offer your customers flexible and safe payment options while enjoying the peace of mind that comes with reduced financial risk and stronger financial stability.

We act as a third-party payment solution provider that will help you offer flexible terms of trade disconnected from your customers, meaning we manage the risk while you maintain confidence and trust with your customers – with no impact towards your balance sheet.

Chat to us and learn about our invoice payment infrastructure and the various payment options that benefit both buyer and seller.

*This article is for general information purposes only. Consult a qualified financial advisor regarding any changes to or decisions about your business’s finances.