This guest blog was written by the team at GoCardless.

Running a small business can mean moving between being a general manager to a customer services contact, marketing lead and, in some cases, debt collector. Without the proper processes in place, managing payments can take up too much time and even result in bigger problems.

In fact, the Office of National Statistics shared that poor cash flow is responsible for up to 90% of new businesses failing. Breaking this cycle can be tough, especially when a quarter of small business owners say they’re uncomfortable talking about money with their suppliers and customers.

The true cost of late payments

According to our research, on average, UK small businesses are paid up to 18 days late. There’s already an upfront concern about people using services or products without paying for them at all. But then there’s the additional time and resources spent pursuing those payments – small businesses spend around four hours every week chasing late payments. If the right processes aren’t in place then manual money management can become labour-intensive, draining time, money and morale. 

Chasing late payments causes avoidable stress on both the payer and payee side of the experience. Customers can feel frustrated by constant reminders to make a payment which may have failed accidentally, perhaps due to an expired card, or perhaps payment has been made but the business can’t see the funds in their account yet.

On the payee side, the inconsistent cash flow makes it hard to plan ahead or invest in essential parts of the business. Poor cash flow can have hugely detrimental effects, with 80% of small business owners unsure if they can pay their own invoices on time, and a further 89% saying the uncertainty around money coming in and out leads to increased stress and anxiety.  

Getting started in three steps

1. Using pull payments

During our recent session at Xerocon London, we emphasised that changing the way payments are collected can put businesses, rather than their customers, in control of their cash flow.

One of the simplest changes that a small business can make is switching from a ‘push’ to a ‘pull’ method. Push payments mean that the payer is in control of when and how much is paid – think of manual bank transfers, cash payments, or one-off card payments. But if a business has lots of repeat orders, such as subscription plans, then switching to a pull method means that they are pulling a pre-agreed amount of money from their customer’s account into theirs. It removes the element of the unknown and gives them greater control.

A prime example of an effective pull method is direct debit as it can be easily automated to collect a set amount on a regular basis, only needing to be set up once by the customer and then continuing to run until the end of the buying relationship.

2. Reduce manual burdens

Businesses can go one step further to eliminate manual processes. Time spent reconciling payments manually and sifting through multiple reports can be significantly reduced by switching to a payment provider that offers integration with the business’s existing accounting software.

Not all providers offer this, so due diligence is needed, but once in place it means being able to manage the end-to-end payments process in one place, just as you can through the Xero and GoCardless integration. 

3. Think online and on the go

Finally, businesses can use payment tools that can be accessed online and on the go. Small business owners needn’t be limited by having to be in a set place to manage their money. Using providers that offer digital- and cloud-based solutions, gives the added peace of mind of 24/7 accessibility.

Making it easy to get paid

Adam Cozens, co-founder at specialty coffee roasters, Perky Blenders, uses Xero and GoCardless to help run the business. With a Xero account that is “very, very busy”, having the two systems talk to each other reduces the burden of invoicing and chasing customers for payments.

“It’s not something we’ve had to worry about. The integration provides the flexibility to invoice each customer within days,” says Adam. “GoCardless automatically takes the payment on the due date, whether that’s payment on invoice, 60 days, whatever.”

Find out more about how you can make the most of GoCardless and Xero. Check out GoCardless on the Xero App Store.

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