SMEs must rethink how they chase for payments to survive COVID-19

Singapore SMEs must make urgent changes to the way they chase their customers for payment if they are to survive, says RIABU's Mark Laudi.

The single-biggest take-away from the COVID-19 induced economic slowdown is that Singapore SMEs must make urgent changes to the way they chase their customers for payment if they are to survive, in findings derived from a survey of finance managers in Singapore.

The survey of 200 finance and business managers, conducted by RIABU, shows late payments are a growing problem. More than 4-in-5 (82%) of Singapore finance managers surveyed say late payments are an urgent issue for them, with 3-in-5 (61%) saying the situation is getting worse.

This dovetails with the government’s revised economic growth forecast to -0.5%-1.5%, down from 0.5%-2.5% forecast as recently as November.

A large majority (86.5%) of respondents say late payments hamper their ability to grow and invest, but a similar majority (83.5%) say they prefer a solution that did not involve borrowing more money.

Most respondents put the blame on late payments on their customers’ payables policy (71%), or the economy (70.5%).

Singapore SMEs must face the fact that it cannot be ‘business as usual’ when sales are slowing, when they run short of working capital, and they risk having to retrench staff. They must make changes to the way they interact with customers, so that even during a slowdown they get their invoices paid on time.

The first thing SMEs must realise is that they can influence when their customers pay them – and it’s not by chasing them harder, scheduling automating reminders, or sending lawyers’ letters demanding payment.

Too few of them (46% of survey respondents) accept the stark reality that most times customers don’t pay on time it’s because they made mistakes on their invoices, or leave too much wiggle room for customers to make excuses to pay.

The three most common myths of late payments are:

  1. Customers deliberately delay paying their bills

  2. Asking customers to pay risks losing future sales, or losing the customer altogether, and

  3. Receivables are the sole responsibility of the finance department.

The good news is most of them (82.5%) are ready to make changes to their invoicing process if it means they will get paid on time.

What can you do to get your customers to pay your invoices faster?

Here are three immediate things you can do today in order to influence your customers payment process:

  1. Get everybody on board. Generating cash is not just the responsibility of the finance department. It is everybody’s responsibility, from the CEO down. Many of your staff or colleagues might prefer to push this issue to the finance department, or even an external collections agency. This exacerbates the problem, rather than solves it. Everybody in your organisation must understand the importance of timely collections and contribute to the solution.

  2. Get the paperwork right. This sounds basic, but it is the most frequently overlooked step. You must ensure that not only do they deliver your products or services to specifications, but also ensure your customer’s expectations of the invoicing process are met. This includes proper vendor onboarding, through to signed credit policies, through to invoicing. All too often, errors creep in. Are you sure you’ve got it together?

  3. Identify frequent errors. You will likely find that most delays in payment are caused by just a handful of issues in your process or invoices. If you can identify and solve these, you will find many of your late payment problems are solved.

In a time of distress, a “business as usual” mentality means death and SMEs would do well to change the way they approach payments. Instead of chasing harder, or even delegating collections to a lawyer or collections agency, they should see their customers as people too, and that building closer relationships with them will serve them well when times improve.

The writer is Managing Partner of RIABU, a Singapore start-up that helps SMEs get their invoices paid on time.