There is nothing quite as gratifying as receiving a cheque in the mail from a customer, or an SMS notification from the bank announcing the arrival of payment for services rendered. Late payments, on the other hand, can signal cash flow disaster for growing small businesses.
According to a recent research paper by Atradius, 30 per cent of invoices issued by Hong Kong firms and 35 per cent issued by Singapore firms were paid late in 2014. Naturally, collection creates no new revenue, but business owners who neglect to collect late invoices or who leave it too late may find themselves with insufficient funds to pay key suppliers or meet payroll obligations to staff.
Collecting outstanding payments is the responsibility of every small business owner in Hong Kong. Telephone calls to accounts payable departments are useful to keep an invoice top of mind, but not a scalable measure. Outsourcing collections to a third party is an option, but a last resort, as it can damage customer relations.
There are alternative strategies that can assist:
Switch to e-invoicing and reduce errors
Once an erroneous invoice has been introduced into a customer’s accounts payable system, it can take weeks to be flushed out and replaced with an updated and correct version. Switching to e-invoicing allows users to convert a purchase order into an e-invoice with a click of the mouse. No cutting and pasting of content is required, reducing the chance of errors.
Automated reminders
Have applications play ‘bad cop’ by sending automatic reminders to accounts payable departments. For reminders to be effective, they must be consistent. If the party knows they will be pestered by automated emails, they are more likely to keep your receivable foremost in their thoughts. Initial reminders should have a friendly tone, and become harsher the longer the payment remains outstanding.
Collection methods
Recognise that a foreign multinational is different from a ten-person mum-and-pop shop. Discover which channel of communication works best. A quick WhatsApp message followed by an email may be more effective than ten telephone calls. As a rule of thumb, set up an email address specifically for finance-related matters. You are going to want to have a different voice and perhaps another person to communicate.
Alternative financing
A handful of non-bank capital providers are willing to provide an advance on an invoice, without having to collateralise plant or equipment. This is a more scalable option for businesses just starting up or which have assets already encumbered. Use this method in conjunction with cash-flow tools by identifying invoices that ought to be advanced early.
In the long run, these measures will keep your accounts receivable levels in check, and ensure you have sufficient liquidity to grow the business.
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