A recent global study revealed that American businesses get their invoices paid in an average of 23.5 days compared to businesses around the world. Small to medium businesses in Canada, the Czech Republic, Germany, Hong Kong, France, Ireland, the Netherlands, the UK, Singapore, and Poland were also surveyed. Business invoices in France and Singapore were paid on average in 45 days. Comparatively, these figures are positive but late payments are still a problem in the United States.
What challenges are U.S. small to medium businesses facing when attempting to get their invoices paid faster?
SMB Debt and Cash Flow Challenges
Although small-to-medium U.S.-based businesses are paid faster on average than other countries, it was also reported that 26% of U.S. respondents aren't paid within 30 days. Other survey statistics on American small-to-medium businesses include:
- 25% have been unable to recover bad debt in the past 12 months (Below global average but up 3% from last year)
- Average bad debt written off is $73,000
- 31% expect cash flow to be their biggest challenge
- 41% state collecting payments as their biggest cash flow challenge
How Late Payments Affect Business
Small and medium sized businesses are owed for thousands of unpaid invoices. Managing these businesses with a small or growing staff may also mean that some aren't aware of what hasn't been paid. As a consequence for not being paid on time, businesses may be delayed paying their own suppliers, vendors, or employees. Working capital is required to run the daily operations of the organization, no matter the size, and late invoice payments can stall the momentum.
If invoices aren't paid on time:
- The business could accrue late payment fees to their own suppliers and vendors.
- Contracts could be threatened if the business is unable to hold up their end of the agreement.
- Employees who haven't been paid may decide to leave the business, adding in more costs of hiring and training new candidates.
Prompt Faster Payments & Recover Debt
The best practice against late payments is organization and encouraging clients to pay their invoices faster. Small and medium businesses can get organized by creating accounting practices that include:
- Investing in accounting software.
- Tracking income and expenses.
- Scheduling time for record keeping and reconciling.
- Reviewing cash flow often.
Prompt faster invoice payments by:
- Offering discounts or incentives for paying early.
- Charging interest on late payments.
- Communicating regularly with client's accounts payable department.
For those invoice payments that are already past due, businesses need to find capital to continue growing their business. There are a few options available, depending on the timing and the financial situation of the organization:
- Follow up with payment reminders - in case the invoice was misplaced or overlooked
- Accounts receivable clean-up - to help with collections early
- Factoring invoices - to obtain funds immediately when the client will pay later
- B2B Debt Collections - to recover accounts written off as bad debt or unrecoverable
Although U.S. small and medium sized businesses seem to fare well, comparatively, to other global businesses collecting payments on invoices, they are still challenged with being paid on time. These inconsistent payments can wreck havoc on business owners and decision makers who want to focus on growing their business, instead of chasing payments. Thankfully, there are options to encourage faster invoice payments and recover older payments to build dependable cash flow for the organization.
