Late payments and invoice disputes that may have caused the delayed payment can have a significant negative impact on a business. A study conducted in the United Kingdom in 2011 indicated 75% of small businesses were affected by long payment terms or late payments. The research further indicated that 50% of these companies spent 4-6 hours each week managing late accounts. Perhaps the most startling statistic in this study was the fact that 4,000 businesses failed in 2008 as a direct consequence of late payments.
Accounts receivable invoice disputes delay payment. We know from our research that the longer an invoice goes unpaid – the less likely that it’ll ever be paid – or at least paid in full. Allowing an invoice to age to just 90 days means that you’ll be lucky to collect just 74% of the balance due; and forget about trying to collect on invoices older than 12 months – only 10% of these will be paid.
Late payments due to invoice disputes can have a significant impact on your cash flow. While A/R sits on your balance sheet as an asset, it does you no good whatsoever when you have no cash in the bank to pay your employees and your vendors.
Managing working capital is a foreign concept for too many businesses – especially smaller companies that lack the knowledge and the resources to do it right. The consequences can amount to significant erosion in profit margins due to costs of financing working capital through a financial institution when cash is unavailable to manage day-to-day business operations and expenses.
Further, businesses across industries write-off approximately 4% of credit sales annually. To put it in perspective – that’s $400,000 annually for a $10 million company. What if you could reduce bad debt write-offs by just 20%? That would equate to $80,000 in annual savings– every single year! And there are ways to save even more than $80,000 by eliminating paper and postage costs for electronic invoicing and avoiding financing costs for borrowing cash when you’re unable to collect on your accounts receivable and you need to make payroll or you want to make a large capital investment.
We have written an entire white paper dedicated to helping you drastically reduce the amoung of accounts receivable invoice disputes so you can get paid faster and improve cash flow. The white paper is available here for free download