Cashflow Problems During Covid 19 | Push Digits Chartered Accountants

Small Businesses Faced Problems of Overdue Invoices During Pandemic

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Small Businesses Faced Problems of Overdue Invoices During Pandemic

Many owners of small size businesses have been coping with cash flow problems during the pandemic mainly due to unpaid customer invoices as a result of which some of the business owners needed to cover their daily business expenses by selling business assets, family heirlooms, and other valuables.

As per a recent survey conducted by Wave, it was found that 17% of the 1,008 owners of businesses having 9 employees or less that participated in the survey, said that they are yet to receive payment against some of the invoices they had sent out to their customers. Nearly one out of 10 (8%) said that they waited more than a year for the customers to make payment against the invoices sent, while 70% waited for six months or less. Nearly 8% of the business owners that participated in the survey said that they have sold a family heirloom to meet daily business expenses due to cash flow problems caused by late customer payments, while 11% of the owners were forced to look for a job. Further, 30% of the participants needed to borrow from their own money while 19% of the participants said that they needed to borrow from family or friends. A huge number of business owners had to terminate permanent accountants and take virtual accounting services and similarly, many businesses took remote audit services to reduce auditing fees. Many of the business owners said that they either did not take any paycheck from their businesses or they reduce the amount of paycheck they were used to receive from their businesses in the light of the cash flow problems caused by the pandemic. During the survey, it was also found that 13% of the respondents were forced to take out a loan.

The COVID-19 pandemic has forced several small businesses to close its operations in the last year and a half. The ones that survived took extraordinary measures to keep their doors open.

David Axler, vice president of banking and books at Wave, said that cash flow emerged as a major problem for many business owners especially the small ones, mainly due to late customer payments. He also said that around 70% of the participants waited six months or less to get paid while around 25% said they waited for more than a year or are still yet to receive payment against services rendered. Usually, the standard credit period for an invoice, irrespective of the size of the business or the industry in which it operates, is 15 to 30 days.  

When it comes to reason or excuses for delays in payment, business owners said that they heard many reasons, such as “I’m short on funds or don’t have money” (34%), “I never received the invoice” (24%), and “I was on vacation” (13%).

Axler said that that one of the major issues which many business owners faced was regarding managing the cash flow problems caused by late or lack of customer payments. He further said that when we went deeper and asked the respondents as to what were the reasons they heard from their customers in connection to delays in payment then the most common replies we got were that ‘we forgot,’ ‘we didn’t realize,’ and ‘I never received one.’ So, the reason of not receiving the invoice was stated by about 25% of the participants who experienced delays in payment. The excuse from customers that late or lack of payment was mainly because they either didn’t received the invoice or just forgot to make the payment, indicates towards lack of follow-up from the business as well as lack of awareness to the fact that there is a payment to be made on the customer’s part. It’s a lot less common in the retail business where usually payments have to be made at the time when a product is a purchase or a service is rendered. However, the risk of a delay in payment from the customer’s side is high when the invoice is sent after the service is rendered.

The survey revealed that most of the participants relied on traditional payment methods such as paper cheques (71%) and cash (61%), while half accept credit or debit cards (50%). Around 38% of the respondents said they use their personal bank accounts for making business payments, while 29% of the participants indicated that they don’t separate their business and personal finances at all. About 22% of the participants said that they use pen and paper to keep track of all their finances, while 14% use an Excel spreadsheet to maintain a record of their finances. Some 14% of the participants admitted that they don’t follow up on overdue invoices, while 13% confessed that either they forgot to send the invoices or got delayed in sending invoices. It was also revealed that 21% of the respondents said they don’t keep track of their receipts, while 11% said that they relied on high-interest financing to keep their business afloat.

Most of the participants felt more motivated and confident mainly due to the vaccine rollouts and the continuing economic recovery all around the world. About 39% of the participant in the survey said that they feel more motivated than ever to continue working for themselves, and 35% of the respondents expressed their confidence regarding the future of small businesses.

Many policies and practices that were adopted by businesses mainly due to the COVID-19 pandemic are most likely to continue e.g. remote working. The survey revealed that around 21% of the participants started accepting payments through digital payment platforms like PayPal and Venmo during the pandemic. These business owners are planning to continue using digital payment platforms for making and receiving payments even after the pandemic. Around 15% of the respondents started or plan to continue digital banking. The survey also revealed that around 8% of the business owners surveyed either started or have plans to continue using bookkeeping or digital invoices, while 13% began or plan to continue offering virtual services.

One trend that had a positive impact on businesses was more use of digital platforms for making and receiving payments. The acceptance of digital methods and platforms for receiving payments has certainly gone up mainly because it is easier as well as faster to receive payment through digital payment methods and platforms when compared with traditional means. Even though the majority of the respondents said that they are still relying on cash and paper cheques to receive payments but on the other side we also found that around 50% of the respondents expressed that they’re comfortable in accepting payments through debit and credit cards. Businesses that accept online payments get paid faster as compared to those that still rely on traditional payment methods. The COVID-19 has changed perceptions of a number of business owners with regards to using digital methods and platforms for making and receiving payments and therefore more and more businesses are now using digital banking and online payment platforms for receiving and making payments.



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