Outstanding invoices – whether you’re a small business or large, they’re the bugbear of most organisations.
Money that is owed to you as a business is cash that you do not have at your disposal, income you have not yet earned, and a liability too many businesses willingly shoulder.
I recently sat down for a fascinating Business Conversation with debt recovery expert Anthony Igra during which we discussed strategies to minimise outstanding invoices, and it highlighted just how many businesses struggle with this issue.
That conversation is well worth a listen and I urge you to enjoy the full interview here, but in the interim, let’s talk outstanding invoices, their impact, and the thinking in your business that needs to change…
Some cold hard stat’s
We all know the statistic that 60 per cent of small businesses fail within their first three years of operation in Australia.
Most of us appreciate lack of market research, poor management, and lack of planning play a role.
But an equally likely candidate is poor cash management, and that’s not just about expenditure, it’s about the income you fail to collect as well.
Statistics from 2017 indicate Australian businesses are collectively owed $76 billion in outstanding invoices, meaning an average business could have around $38,000 owed to them by customers.
As that’s almost akin to a full-time starting wage, that’s no small figure to overlook.
The trouble with outstanding invoices
The trouble with outstanding invoices is they affect your cashflow which goes on to impact your ability to grow, to employ extra staff and to enjoy the lifestyle which you believed your business would offer.
In fact, a recent SME cash flow crisis report by the Invoice Market found cash flow is so dire for 38 per cent of Australian small businesses that owners dip into their personal savings to manage their company finances.
This in turn impacts their ability to pay their housing and other living expenses.
And it begs the question, why do we let it get so bad?
The five biggest mistakes you probably make
Poor invoice management comes down to a range of factors, not least of which are the systems and procedures you adopt behind the scenes, and the mindshift you embrace when it comes to customer relations.
So here I’ll outline the five biggest mistakes you’re currently making…
1. Your customers are not your friends
You may like them, you may work well with them, but your customers are not your friends – they engage you for a service or product for which they expect to pay.
2. You fail to be clear from the outset
All businesses should have strict terms and conditions when it comes to payments. These should be obvious in your quotes, in your invoicing, and in the policies and procedures within your business.
3. Your invoicing is sloppy
This is a similar point to the last one, but take a moment to consider how regularly you invoice, and how much time elapses between the sale of a product or service and when the invoice for it goes out.
Every business should have a strict system that ensures invoices go out as soon as possible to ensure you get paid on time.
If that’s proving too great a task for you as the business owner, it’s time to automate or call in some help.
4. You fail to follow-up
Although you may have your terms and conditions documented, if an invoice is outstanding do you follow-up?
Again, automation and outsourcing can assist here, but the bottom line is when an invoice is overdue, reminders need to be issued, calls need to be made, and further work should stop.
If that fails to work, debt recovery might be your next port of call.
5. You think you can overlook it
Yes, following up takes work and it does involve treating customers as a customer rather than a friend, but if you think you can overlook overdue invoices, you are sadly mistaken.
If this year has taught us anything, it’s that things in business can rapidly change, and no small or medium business can afford to work for free.
So my question to you is this…what will you do right now to change your mindset and address the systems and procedures that mean your business currently works part-time as a charity undertaking work for free?
For more great insight into this topic, you can catch my conversation with Andrew Igra here, but for now, it’s time to get real about invoices to help your business grow.