How Unpaid Invoices Impact Small Business Growth and What You Can Do About It
Every business dreams of superstar clients who pay their invoices within hours of receipt. But the numbers tell a different story — around 49% of invoices sent by US businesses become overdue. As well as being incredibly stressful, this predicament can force businesses to take out loans or rethink their growth plans.
But unpaid invoices aren’t just another “cost of doing business” that you have to accept. After discussing how unpaid invoices can prevent small businesses from growing, we’ll dive into some of the best solutions to tackle the problem.
Impact of Unpaid Invoices on Small Business Growth
We all know that more money means better growth opportunities. But let’s take a more detailed look at how unpaid invoices can cause a snowball effect that hinders ambitious small businesses.
Cash Flow Issues
The most obvious impact of unpaid invoices is the cashflow problems it causes. Small businesses aren’t generally sitting on a pile of cash to see them through hard times, meaning each invoice plays a crucial role in covering costs and keeping the company going.
A report from JP Morgan Chase Institute found that the median small business has cash reserves to last it just 27 days. Once these reserves are exhausted, a company may be left with no other option but to take on debt to cover their costs.
This means that, even if the invoices are eventually paid, a business will have to use some of the funds it has received to repay the loan interest — which is much less beneficial than investing in its own growth.
In the worst case scenario, cash flow issues could even lead to an eventual bankruptcy. It’s easy to see how the seemingly simple issue of a few unpaid invoices can soon lead to catastrophic consequences.
Inability to Plan
Inflows of cash form the basis of forecasts about a company’s growth and strategies. If you can’t rely on your customers to pay their invoices on time (or to pay their invoices at all), then making a reliable forecast becomes incredibly difficult. You’ll effectively be left in the dark, trying to make plans without knowing the resources that will be available to you.
This makes it riskier to invest in activities that promote growth, such as hiring new staff or running marketing campaigns to capture new customers.
Time Lost Chasing Invoices
When invoices are left unpaid, it leaves you with extra work. Staff will have to spend time tracking which invoices have been paid, which are still outstanding, and chasing customers to receive the payments.
Imagine how much time you could dedicate elsewhere if you could rely on every invoice you sent being promptly paid within a reliable timeframe. This frees up time to dedicate to other tasks, such as growth strategies.
Reputational Damage
If your customers or clients fail to pay invoices, that will likely have the knock-on effect of making it harder for you to pay your own suppliers.
This can soon lead to you developing a poor reputation within your industry network, or losing relationships with the best suppliers. The word could also spread to other businesses, who could start to view you as unprofessional and be less willing to make deals or partnerships.
Also, investors will want to look at your numbers, including your cash flow. Seeing a high number of unpaid invoices may be perceived as a red flag and deter investment.
What You Can Do About Unpaid Invoices
When you’re a small business, it can feel like you’re powerless about whether your client pays, and that the decision is down to nothing more than the goodwill of your customers. But it’s possible to take matters into your own hands.
Automation
Manual processes often hold small businesses back, especially when it comes to billing. By automating processes, you will at least be able to follow up on unpaid invoices more efficiently.
Many invoicing and accounting tools allow you to track which invoices have been paid, which ones haven’t, and to see what the total amount outstanding is, including Quickbooks and Xero. This helps you with cash flow management too.
Some services may also give you a prompt to send follow-ups for unpaid invoices or automatically send reminders to customers if they haven’t paid within a certain timeframe. This is the case with PayPal, which has its own invoicing dashboard.
Legal Help
Want to stop that feeling like you’re just the small guy begging for payment from customers? One option is to bring in the big guns. While not every client will respond to your demands for payments, they may start to pay more attention once legal professionals get involved.
Some insurance policies include legal help with chasing invoice in their policies, which you can use if a big invoice is left unpaid.
Another option is to use a dedicated service such as Retrievables, a B2B collection marketplace that connects businesses with collection attorneys. After you register on the site and submit an unpaid invoice, you’ll be connected straight to a vetted attorney that specializes in collections. This takes the task off your plate.
Instead of paying for insurance and worrying about making a claim once an invoice is left unpaid, you’ll only have to pay at the point when you actually have an unpaid invoice. Retrievable also integrates with services like Quickbooks, so you can take advantage of the accounting tool’s automation features as well as boosting the chances of payment.
Get Those Invoices Paid
One or two unpaid invoices might not feel like the end of the world, but once they add up, it can start to make a significant dent in your revenue. This then has a knock-on effect, causing issues like the need for loans or an inability to invest in business growth.
But there’s more you can do to solve the problem than just crossing your fingers and waiting. There are various tools that help you to automate the follow-up process or even obtain legal help to boost the chances of getting invoices paid.
