Small businesses play an important role in the South African economy. They drive job creation, innovation, skills development and economic growth. Consistent late payments to small businesses create many challenges for operational activities.
Some of these challenges include disrupted cash flow, increased debt, strained relationships and reduced profit margins:
Cash flow disruption.
Small businesses usually have limited available cash. Late payments prevent the business’s ability to pay suppliers, salaries and other bills timeously. This can lead to major financial issues.
Increased debt.
In order to cover expenses during the late payments, additional loans may be required to pay bills. This leads to higher interest costs and lower profit margins.
Strained relationships with suppliers and employees.
Consistent late payments to suppliers can damage relationships resulting in stricter payment terms and/or reduced credit limits. Employees may also be subjected to the late payment of salaries, which may lead to demotivation.
Reduced growth opportunities.
Small businesses will have to delay new projects or expansion plans due to the limited working capital. This hinders growth, innovation and competitiveness.
Operational challenges.
Dealing with late payments requires time and resources which could be used in core business operations and strategic planning.
How to manage and reduce late payments
Create electronic payment methods.
Small businesses can eliminate manual processes by digitising payments.
Offer discounts.
Discounts on invoices encourage customers to pay bills early.
Use invoice automation software.
The use of a computerized invoicing system eliminates time-consuming manual processes.
While late payments are a common problem, the use of the correct tools and strategies can significantly reduce their frequency.
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