What to do when your business is drowning in unpaid invoices

August 30th, 2017


If you run a small business, it's essential that you have fast access to cash whenever you need it. This might be to rent your facility, pay a supplier, dole out wages to your employees or any one of many other needs. Cash is king; you have an urgent need for it pretty much all the time.

Unfortunately, a common problem for small businesses in Australia is they don't have cash when they need it.

Unfortunately, a common problem for small businesses in Australia is they don't have cash when they need it; instead, they have a pile of unpaid invoices and a group of customers who are slow to pay the debts they owe.

Even if your product is popular and sales are strong, your business might still buckle under the pressure of poor cashflow. Does this sound like a problem that's threatening your business? If so, you should definitely take action to deal with it right away.

The cashflow problem in Australia is staggering

No one dealing with the problem of unpaid invoices in business should feel alone, because in reality, they're very far from it. The "Late Payments Study" by PayPal and Intuit Australia revealed that the average small business in Australia is owed $13,200 in unpaid debts, and many of them are folding under that weight.

"One of the key reasons [they fail] is that many small businesses start with a bad idea - an idea that was never going to work. But the biggest reason for failure is a lack of capital," Greg Hayes of Hayes Knights Accountants and Advisers told Huffington Post Australia. "It's a common story that many people go into business under-capitalised and they just run out of money."

Perhaps the reason for all this capitalisation trouble is a failure to collect debts on time. The study also found that only 12 per cent of companies are collecting payment upfront from their clients, and 67 per cent take a week or more just to issue an invoice. Tightening up this process would surely yield results.

Getting tougher about collecting unpaid debts

For many businesses, a lack of access to working capital is a crippling problem, as they don't have the money to cover basic expenses. Is this an issue for you? In that case, you may want to develop a more systematic approach to chasing down debts.

Add to your company's coffers whatever amount you can.
Add to your company's coffers whatever amount you can.

The Department of Industry, Innovation and Science advises beginning by asking whether a given debt is worth pursuing. If you're owed so little money that it's not worth the time and effort to chase the debtor, then don't bother. But in many cases, you have invoices big enough that it's worth taking action. Have you considered writing a formal letter that demands payment and includes the threat of legal action?

This is a risky move - on one hand, it's more likely to get results than any other strategy, but on the other hand, you've got to worry about the possibility of alienating the debtor and jeopardising future sales. You've got to weigh the value of your customer relationships against your need to collect cash right now.

Do you need help getting access to cash?

One way or another, you've got to have cash in hand soon. Expenses always pile up in business - rent, wages, materials and so on - and if you don't pay them, the future of your business will be at stake. To deal with this problem head-on and get access the money you need, you may want to consider debtor finance.

Getting debtor finance is something that can benefit businesses of all sizes. To learn more about how this service can assist you, get in touch with us at Earlypay. We'll be happy to explain all the details.

If you'd like to learn how Earlypay's Invoice Finance & Equipment Finance can help you boost your working capital to fund growth or keep on top of day-to-day operations of your business, contact Earlypay's helpful team today on 1300 760 205, visit our sign-up form or contact [email protected].