The issue of SMEs suffering from late and overdue payments is rather commonplace throughout the world. Every year, new reports and research get released, detailing the swathes of SMEs who suffer from late payments and outstanding bills.
This corporate culture of slow payment is concerning as SMEs rely more heavily on prompt payment in order to cover their running costs and maintain a positive cash-flow. Without getting paid on time, SMEs may not be able to pitch for new business as they are unable to purchase components or pay staff. Getting paid late also means that SMEs are forced to pay their own suppliers late as well. As such, late payments not only serve to stifle an SME’s ability to grow, they also put them at risk of bankruptcy.
Generally, the typical credit term for a large company is around 30 days. This should also apply to SMEs. However, it is not uncommon to see SMEs wait double the length of time or more before getting paid by their larger clients. One of the potential reasons for this is likely due to SMEs being near the end of the supply chain. Other reasons can include internal issues, system errors, supply chain issues, or a company crisis.
For example, a survey conducted by Malaysia SME Media Group and INTI International University and Colleges with participation of SME industry players revealed that 73 per cent of 2000 Malaysian SMEs interviewed suffer from late payments. Payments received from other SMEs took an average of 47 days while payments from big companies often took 94 days or more. As a result, we are seeing an increase in insolvency and legal cases over continuous late payments.
So what can be done to improve the situation of SMEs regarding overdue payments? Well, on the payee’s side, reminders of payment and outstanding invoices need to be constant. According to Kesh Singh, CEO of Kollect Systems Sdn Bhd, invoices are often synonymous with revenue. However, it does not mean that money has been received by the payee. It is the cash flow process that drives an organisations livelihood.
SMEs must not be satisfied with just handing over their invoice and calling it a day. Singh advises businesses to keep reminding their clients consistently until they are paid. It does not help that there is a prevalent culture among large corporations especially to not pay their invoices unless they are reminded to.
SME payees should also ensure that their payment terms are very clearly stated on their invoice. “This is to ensure that there can be no excuses on the payer’s end,” said Singh.
Another solution that Singh proposed SMEs to implement is Accounts Receivable (A/R) automation. Speed and convenience is the name of the game in today’s world. The A/R team of a company often spends a lot of time and effort on manually managing operations when it comes to collecting payments. Payment options for customers are probably limited, and late payments are hard to find and time-consuming to follow-up on.
A/R collections automation not only streamlines the process, the payee is able to automate the sending out of reminders whether by emails, messaging, letters as well as pre-programming self-prompting calls and visitation appointments to their debtors. Promise to pay deadline tracking is also an important feature in A/R automation. The payee is able to formulate the reminder strategies, tailoring to different debtor or invoice categories as well as attach Statement of Accounts. Additionally the payee is able to access on mobile devices. Taking the process online also opens up a range of payment options, which increases the likelihood that clients will pay in a timely manner, providing convenience while improving accuracy of reconciliation of payments against invoices thanks to payment automation features.
Such automation can also help with regards to invoice disputes. By allowing both the payer and payee to trace the invoice and observe how it ages, payers can be reminded automatically as well as dispute any items that the payee have not delivered on. The payee can also track said disputes in order to resolve them.
“Our solutions at Kollect Systems provide rapid return on investments as the solutions help to empower clients, especially SMEs, to realise control of the outstanding amounts due in a prompt and efficient manner,” said Singh.
“For example, our suite of applications streamlines and automates the entire revenue collection and debt recovery process. It can be set up as such that depending on a certain customer contact result, a future date, letter generation or action can automatically be scheduled. Collection personnel have access to up-to-the-minute information on each customer in terms of delinquencies, payments, disputes and promises to pay, so they can quickly resolve collection issues with customers,” he added.