September 4, 2023
According to Entrepreneur magazine, 82 percent of businesses fail due to unpaid invoices. Small businesses in the US are owed a total of around $825 billion by those for whom they have provided goods and services.
This equals five percent of the total economic production of the United States in any given year.
Small businesses bear the brunt of unpaid invoices. From medical professionals to manufacturers, all too many have uncollected and even uncollectible accounts dragging down their bottom line.
Sometimes the problem comes from the business’s own deficient practices. In other cases, the customer or client has elected, or has become unable to, pay the debt.
Regardless of the reason, processes that make payment more efficient and convenient have higher rates of payment collections than businesses that struggle with accounts receivable.
Business Issues That Interfere With Resolution of Unpaid Invoices
Some businesses use traditional paper-based accounting processes that have existed since the era when Christopher Columbus sailed the ocean blue. Though a slow process compared to modern mobile invoicing apps, for example, if done right, businesses should generally have fewer problems than those ill-equipped to perform accounting and business administration on their own.
Digital accounting programs and invoicing apps can reduce rates of non-payment simply by making invoicing more convenient for both businesses and their patrons. But they will only enjoy benefits if they use a well-designed system and understand how to apply its beneficial features.
In most cases, problems from the business’s end of the invoicing process stem from a lack of professional-grade ability on the staff or with ownership. As accounts receivable gets more complex with business growth, functions related to billing often cannot keep up with the challenge.
Poor Accounting Systems
Whether the accounting system uses traditional processes or modern technology, those administering them must manage them properly. To be efficient and productive, the owner or staff should research and apply best practices and follow them rigorously, including accurate, comprehensive, and legible record-keeping on professional templates and other resources.
When a customer or client disputes a bill, in many cases the status of the accounting system can make or break a business’s case that it deserves payment. Poor record-keeping on the business’s part can lead to part or all of the bill being voided in court.
Disorganized Invoicing
This problem may seem similar to that of poor accounting, but it involves wider issues. Inadequate accounting can prevent an invoice from getting paid.
Dysfunctional billing could result in the bill never going out in the first place. It could also result in errors that reflect poorly on a business’s professional reputation or, even worse, result in the invoice not holding up in a court dispute.
Technology Struggles
Problems do not only occur when businesses stick to the tried and true paper-based systems. When companies make the decision to modernize, they should be careful of which invoicing system they select.
The wrong invoicing systems can bring a number of problems, including, but not limited to:
- Overly restrictive caps on use
- Unnecessarily complicated design or function
- Poor tech support
- Inability to use in remote areas without cell service
- No way to process payments automatically directly from a credit or debit card
- Wrong features or functions for business needs
- Overpromises and underdelivers
While the right mobile invoicing app can serve as a huge boost to bill collection needs, the wrong one can frustrate and confuse.
Poor Communication
Another issue that can prevent effective invoicing and payment lies in that of communication between the company and patron. Experts advise that agreements about billing from the outset include written documentation whose applicable provisions are faithfully reflected by the invoice.
If the business does not communicate payment expectations, including amounts, when they are due, and a brief, but accurate, noting of charges, this can cause problems. Some will stem from confusion, but others will occur when debtors perceive a potential legal avenue to escape their obligations.
Invoices should also have a clear time frame established for payment, usually 30 to 45 days, but sometimes as many as 90.
Traditional Accounts Receivable Practices May Slow Payment, or Even Result In Unpaid Invoices
Even the most well-structured and organized accounts receivable department that uses traditional invoicing will see their payments come more slowly, at least in relative terms.
As businesses adopt technological improvements, such as mobile invoicing apps, they will see their rates of payment improve. Especially when they select a more comprehensive app with business-friendly features, they can almost instantaneously send invoices and receive payments.
When the Problem Is the Customer Or Client
More often than not, the onus of payment issues involves issues with the business patron more than in-house problems. Sometimes due to financial problems, but other times because of unethical practices, businesses will resist paying some or all of the bill as long as possible.
Non-diversified Client or Customer Base
Businesses of all levels should have a diversified customer or client base. Experts say that, between the two options, it’s better to earn a smaller sum serving multiple patrons than a single large account.
When a single client has problems, it can ruin a small business.
While many associate non-payment of bills with smaller and less professionally run companies, in many cases the major clients and customers often cause the most problems. Whether it’s a billionaire engaging in slow-walking payments, or the government itself struggling to fulfill responsibilities, overreliance on a single or small number of patrons can be devastating.
Know When to Be Diplomatic and When to Be More Forceful
When a patron obviously has either decided to resist payment or has grown unable to meet responsibilities, a business needs to explore options before taking the patron to court.
Which approach to take, frankly, depends on the leverage the business has over the client or customer.
Too many times, such as in the case of businesses relying heavily on one or two major clients, the business itself may have little leverage. This is especially true with contractors who offer general services easily obtainable elsewhere.
In other cases, a business may have more leverage to extract the agreed-upon payment. When a vendor offers a specialized service not easily found elsewhere, but vital to the debtor, a threat to discontinue service could be effective.
When the client or customer is struggling financially and also has a previously good track record of payment, the invoicing company should consider a payment arrangement.
Requesting All or Some Payment in Advance
Many companies do this as a matter of course with all clients. Making an arrangement along these lines protects the vendor at the front end and the customer or client at the back end of the transaction.
If the customer or client defaults on the rest of the bill, at least the vendor recoups some of the cost of doing business. Thus, this approach does not help with minimizing the number of unpaid invoices but reduces the total amount owed. The client also retains leverage against the vendor to ensure that the job gets done as contracted.
Pursuing Legal Options
When pursuing payment, suing the customer or client should remain the last resort. It should only serve as a viable option when all other avenues of effort have been exhausted.
Suing the client in most cases causes an irreparable breach, even when the patron is in the wrong.
Lawsuits can also open the door to the public gaining restricted information about the company through the discovery process and trial revelations.
Using Factoring Services
Factoring services are an increasingly popular means through which small businesses can quickly recoup most of the money owed by patrons, selling their unpaid invoices to factoring service at a discount. The factoring company pays a certain percentage of the bill automatically, normally between 80 and 95 percent of the total.
They then engage in collection efforts. If they receive full payment, they turn the remaining percentage of the bill to the company owed, minus fees and other charges.
The main downside of a factoring arrangement comes when the company engages in more aggressive collection practices than the original company might. Abrasive approaches can harm the business relationship.
Regardless of whether or not a company chooses to use a factoring firm, maintaining modern and effective invoicing will still remain key to the effective collection of debts owed.
Sign Up for a Free Trial Today
Billdu is one of the top mobile invoicing apps in the world. Its design allows businesses to send out invoices as quickly as possible. It also includes features that make bill payments a snap for customers or clients.
Check out the website today to learn more about how Billdu can help to make bill collection both more efficient and effective. We know that once you see the benefits of Billdu that you will become another one of our thousands of valued clients around the globe.
