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Trends in Small Business Cash Flow Management and Payment Practices

A few eye-opening trends have emerged in the Atradius Payment Practices Barometer survey that will help you stay on top of your B2B company’s cash flow. This survey looks at corporate payment behaviors in the Americas.

Here are key statistics from the survey:

  • A third of respondents say that maintaining cash flow is the greatest challenge to business profitability.
  • Collecting outstanding invoices is the biggest business challenge for 22.5 percent of the respondents.
  • More than a third of B2B receivables aren’t paid on time.
  • B2B businesses lose almost 52 percent of the value of their receivables when not paid within 90 days of due date.

Using this data, a business that creates 10 invoices per month will have to chase down three or four per month. And that’s just for the new invoices. With more than a third of invoices overdue, the business will also be chasing a few older invoices on top of the three or four late ones.

That’s a lot of cash flow you could be using if these invoices were paid on time. And a lot of wasted time. Worst of all, if you don’t have enough money saved, you could be at risk for going out of business. Having a full load of work and clients won’t matter if your business doesn’t have cash flow available to take care of employees, vendors, bills and other expenses.

The effects of overdue invoices

According to the survey, the average age of accounts receivables is 48 days. About 23 percent of invoices are 31 to 90 days old and 13 percent are more than 90 days old. The main reason for late payments is not having enough funds to make payment followed by “inefficiencies of the banking system” and “complexities of payment procedure.”

Maintaining adequate cash flow and getting outstanding invoices paid are the greatest barriers to B2B business profitability. Chances are great that your business struggles with this and it takes a lot of time out of your day to fix it.

Take a moment to think about how things would be different if you didn’t have to deal with these two problems. This means you would always have enough cash flow and you wouldn’t spend any time contacting late paying customers to pay up. What would that mean for your business? Having the time to focus on growing your business? Never having to worry about paying expenses?

Preventing overdue accounts receivables

To help reduce late payments, you can attempt to solve the two biggest reasons for late payments:

  • Banking system inefficiencies.
  • Payment procedure complexities.

While you don’t have control over the banking system, you can ask your clients about it. Maybe you can help them resolve banking problems. When you do, they’ll be grateful and show it by paying you on time going forward.

If you can’t help there, you can review your payment process. Ask your clients how you can make it easier.

Should you do everything you can to fix those two problems, then the next step would be getting the needed working capital. Access to working capital can balance your cash flow.

You might also look into the timing of your invoices and expenses. Some vendors would be willing to move you to another bill cycle. They’d rather collect payment from you on time than refuse to change the bill due date.

Another option is to explore six sources for working capital that may not require collateral:

  1. Your business: Review your contracts, expenses and invoicing processes.
  2. SBA loans: The U.S. Small Business Administration helps facilitates loans to small businesses.
  3. MCA providers: Merchant cash advance is a loan that you pay back through your sales. May be referred to as business cash advance or small business loan.
  4. Private lenders: They have different policies, rates and plans that might better meet your needs.
  5. Community and small banks: They tend to have more flexibility than large banks.
  6. Factors: Flexible financing that helps you get your invoices paid faster.

Once you address the two common problems for late payments and obtain any needed working capital, you can stop dreaming of a life without chasing payments and cash flow headaches. It’ll become a reality.

Image source: Won Park

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