Spenda 19 October - 7 min read
When we think of processing payments, it typically takes place when certain milestones are reached between your business and the customer. You deliver the product or service, and the customer pays. Or, if you’re processing a larger transaction, perhaps it’s split up into instalments based on your workflow with customers. For example, an IT professional charging a deposit at the start of a project, and subsequent payments falling due as each milestone is met.
But, what about those businesses that typically offer a service to several customers daily? You might own a wholesale distribution business with staff who visit a handful of different customers each day, leaving you to shoulder the task of manually sending out and following up invoices. This is time that could be invested in working on your business’s strategy and optimising operations or perhaps connecting with friends and family.
In this article, we take a look at workflow payments, why it’s critical across a range of sectors and how businesses can automate their payments to realise widespread benefits.
As the name suggests, workflow payments enable businesses to process payments for goods and services in real-time. Particularly relevant to companies that work across multiple sites every day, workflow payments enable you to invoice a customer at the touch of a button once the products or services are delivered.
Workflow payments are important for several reasons, including the ability to realise faster payment times, along with providing a seamless experience for your customers. By establishing the right tools and processes that enable you to pre-authorise payments from your customer’s credit card, you have all the details you need to process payments more efficiently.
Late payments and long payment terms can be crippling for an SME’s cash flow. Not only does restricted cash flow mean the business needs to cover the shortfall of working capital while awaiting payment, but it also holds businesses back from growing their workforce and investing in the business. As a result, an SME that looks profitable on paper can still experience significant financial strain due to restricted cash flow, which can lead to contraction or a need to exit the business either through bankruptcy or distressed sale.
A 2019 study by advisory firm, AlphaBeta found that late payments and long payment times (greater than 30 days) between large businesses and small businesses alone impact around 3.4 million Australian small businesses with turnover below $10 million. Over 50 per cent of small business invoices are paid after 30 days, with an average payment time of 53 days. This equates to $7 billion of working capital each year.
And it’s not just payment times between large business and small businesses that are a problem. The Invoice Market’s 2017 SME Cash Flow Crisis Report outlined that over 40 per cent of SMEs have more than 11 invoices outstanding. Collectively worth an average of $38,000, according to the Report, these unpaid invoices are predominantly with other Australian SMEs.
The top reasons respondents provided for failing to pay an invoice on time were that:
It’s clear that while payment times and terms in Australia are a common challenge for SMEs, the administrative side of processing payments is a key factor in resolving the issue.
Investing some time to establish effective systems and processes across your business can enable you to implement a workflow payments model. This model would allow you to charge for goods and services on delivery, taking friction out of the payment process for your customer while improving your average payment times and cashflow. In practice, this means no more evenings sending and following up invoices from the day’s work or chasing up customers for their payment details. These processes would be automated, including the initial steps of onboarding your customer.
At Spenda, we recognise the significant positive impact that the right payment systems and processes have on businesses from a range of industries. In fact, the ability to implement this in your business may be mere months away, enabling you to start the new year on the right foot with a strategic system in place for your payments.
Reading about Australia’s late payment culture can leave you feeling pessimistic about what can actually address the problem. While regulatory frameworks and publicising the issue helps to raise awareness of late payments, business owners need the right tools to address the root of the problem. This is Spenda’s vision — building a platform of tools and systems your business needs to thrive, address payment challenges and leave more time to focus on what you love doing most — growing your business and serving customers.
Contact us to learn more about how you can integrate the right tools and processes in your business to enable workflow payments.
Chasing late invoice payments is a burden for any business, and still, more than half of B2B payments in Australia continue to be processed late, costing businesses, on average, $115 billion every year.
When you’re running a large operation with hundreds of invoices processed each month, the resources required to manage your payments grow quickly, especially when ageing receivables become a problem. While customers may not pay their invoices for various reasons, it happens too often, causing a range of challenges and increased risk.
Digital payments helped businesses get paid safely and efficiently throughout the COVID-19 lockdowns and associated restrictions. But as economies reopen many challenges still face businesses including supply chain disruptions, the ‘great resignation’, rising inputs such as fuel, and the expense of reopening. These business challenges make now an opportune time to build on the processes optimised throughout the pandemic, especially across B2B trade.
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