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Late Invoice Payment Solutions: QuickBooks Research Reveals Surprising Stats About Late Payments
We work with business owners and finance professionals facing cash flow problems every day. Many times it’s because they have to allow invoice payment terms of 30, 60, 90 days or more. However, the problem can also be caused by their customers paying outstanding invoices late. But it doesn’t need to be this challenging, there are late invoice payment solutions available. And the research shows just what sort of impact delays in payments have on small businesses.
So, what happens to small and medium businesses when the money they’re owed becomes past due? That’s exactly what QuickBooks set out to discover in their most recent research report. They surveyed 2,000 mid-sized businesses (defined as having 25 to 200 employees) for insight into the current state of past due invoices and the resulting effects.
The impacts the QuickBooks payments research discovered from overdue payments are similar to the ones we see business owners face due to long invoice terms. With this new, quantitative information, we can now see the severity of the problem. Below, we’ve broken those impacts down and included relevant stats QuickBooks discovered in their research to show what’s at stake for business owners facing outstanding payments (and the poor cash flow that results). Plus, share some late invoice payment solutions to help unblock slow receivables.
The Effects of Overdue Invoices
1. Slow business growth
Business owners dealing with cash flow issues from long payment terms have expressed in their own words to us how their growth is affected: the lack of cash makes it difficult to impossible for them to pay upfront costs associated with taking on large projects. Some have even had to turn away additional customers because they couldn’t afford to buy materials or hire labor necessary to take on the extra work. Late payments are causing the same problems. How widespread is this issue? Take a look at the research statistics:
- 72 percent of businesses in the survey said that payment processing impacted their ability to grow their business
- 76 percent said they must address late invoice payments before they could focus on growth
- 89 percent of surveyed businesses said late customer payments have set back their company’s long-term growth goals
The numbers don’t lie: delayed payments are delaying growth for the majority of medium-sized businesses. Finding late invoice payment solutions are key to unlocking their potential. The next two effects we’ll discuss give insight into why these delayed payments have such an impact.
2. Less time for important things
One reason that late payments delay growth is that they require time-consuming work for business owners and financial professionals. In fact, 65 percent of businesses said that they spent 14 hours per week on average completing administrative tasks related to collections. Think about it: that’s almost two entire work days wasted chasing down late payments and looking for late invoice payment solutions each and every week. That’s over three months of the year spent collecting from late payers! That time could be better spent on serving current customers or growing the business. (If you’re dealing with this, get our email templates for how to ask for payment professionally.)
3. More stress for business owners
The research from QuickBooks also showed that businesses are owed quite a bit of money in late payments: $304, 066 on average. That fact alone is enough to stress out any business owner who needs that cash to make payroll, buy materials, and pay their own suppliers. It’s been made even worse by the fact that 81 percent of businesses said that their customers had been paying late more often in 2021 than in previous years. That’s on top of other stresses the pandemic has brought on many businesses. To handle this issue, 62 percent asked their customers for instalments until the payment was covered.
Of the businesses surveyed, 78 percent said they were more stressed about late customer payments this year compared to previous years. That means business owners have less energy available to focus on the work that matters, further impacting their growth.
Late Invoice Payment Solutions
Automate systems
Any option that works as a solution for late invoice payments has to get more cash coming into the business, more quickly. The QuickBooks payments research suggests looking for efficiencies in how payments are being handled, citing two statistics. According to 81 percent of businesses surveyed, they didn’t have a fully integrated payment system and 50 percent said that they either had multiple digital platforms with some automation across these platforms or individual digital processes with no automation within each invoicing process.
Investing in an integrated payment process system with automatic reminders is an easy way to help increase your payment recovery. Additionally, don’t neglect to invoice for payment correctly and promptly in order to start the payments cycle without delay. Invoice on time to avoid late charges and ensure you receive payments on time. Clearly state the payment deadline and payment procedures.
Send reminders
If your late-paying customer hasn’t made payment within a set period of time, a couple of late payment reminder emails to their billing department may get the results you need. Your friendly reminder email should be courteous, respectful and tactful. Otherwise, you may never see the funds.
Research shows you can improve reply rates by 65.8% just by sending a single follow-up professional email reminder. Because your original email may have ended up in a spam folder, give your customer the benefit of the doubt. A polite reminder (or maybe a payment incentive!) may pay off, without causing harm to the relationship.
Change payment terms
Another late invoice payment solution is to change the terms of your business arrangements. Having a late payment policy sets payment expectations right from the start in your original contract. While in many cases the customer is setting the terms in the B2B payments transaction, you may have some ability to negotiate terms that incentivize timely payments while discouraging late payments. Consider:
- Late payment fees
- Ask for upfront payment/advance payment
- Digital payment policy
- Payment schedules/payment plans
- Online payment
- Monthly finance charge
- Prompt payment discount for outstanding invoices paid on time
- As a last resort, a letter from a collection agency might be effective for very overdue payments
Invoice funding
Even with the right technology and processes in place for their late invoice payment solutions, payment delays can only be minimized – not eliminated. And for many of these same businesses, cash flow issues stemming from long payment terms continue to be a perennial problem. Another solution to consider is speeding up cash flow through alternative finance solutions, specifically through invoice funding.
With invoice funding, an invoice factoring company gives business owners cash for their unpaid invoices in days – instead of the months it takes for a customer to pay. The customer then pays the factoring company the invoice total. (See a more detailed invoice funding definition here.) This approach eliminates the slow growth, wasted time, and unnecessary stress caused by late B2B payments because:
- Business owners get quick access to their own cash for growth. Funding is based off of invoice totals for work you’ve already completed. With invoice funding, the more you invoice, the more access to working capital you have
- Time spent chasing payments is eliminated. The factoring company professionally handles accounts receivable and collections activity on payments not made on time (if necessary, and while working closely with the business owner)
- Having fast, flexible access to the cash businesses have already earned promotes peace of mind. You can close your books with confidence and ease any seasonal strains. You also won’t lose sleep worrying about how you’re going to cover everyday expenses like payroll and purchasing supplies
No matter what late invoice payment solutions you choose for your unique business needs, the main point is to take action. That way, you’ll have the healthy cash flow you need to grow, focus, and enjoy your business.
Learn More About QuickBooks Financing
If you’re a business owner interested in learning more about the QuickBooks Financing, our A-to-Z Guide on QuickBooks Financing is chock full of information, and answers some of the most popular questions QuickBooks users have about late invoice payment solutions.
Ready to Fund an Invoice?
Unpaid invoices are a common struggle for small business owners, and can become a serious problem if they aren’t resolved. The late invoice payment solutions in this article, such as invoice funding, can help businesses get paid faster and get back to focusing on providing the best services and products. See if you qualify for our invoice funding solution, or get started by connecting your QuickBooks, OpenInvoice, or WorkBench account to start funding an invoice.