Century old idea revived to save SMEs from customer collapses

Corporate collapses such as Probuild, Grocon, Pindan, ABD Group have left thousands of SMEs in the lurch, sending ripples across multiple supply chains.
These events are painful reminders that real success only comes when invoices are paid – not when the job is awarded.
The collapse of Probuild, which according to last year’s record had $311 million worth of trade-related liability outstanding reveals the extent of exposures carried by SMEs.
Reduce outstanding invoices – making sure invoices are paid early or on time for example – would significantly reduce the exposure carried by SMEs.
With corporate collapses a reality and existing ways of getting invoices paid not ‘doing the trick’, SMEs have turned to a century-old idea to help.
Early Payment Discounts – a concept dating back centuries – has been revitalised by technology and is seen as the easiest way to entice customers to proactively pay invoices early.
“Adding early payment discounts into your invoices is the easiest way to get your invoices prioritised and paid first, no doubt about it.” says Charles Wong, CEO and co-founder of B2B early payments software, Parakeet Payments.
“Not only do discounts build customer loyalty, but it makes good business sense because having a large volume of invoices sitting unpaid is risky and bad for your bottom-line.”
According to the Australian Financial Security Authority(1), unsecured creditors such as suppliers, vendors and contractors only receive an average of 1.63 cents for every dollar owed when a company is declared bankrupt.
This equates to a recovery of only $16.30 on a $1,000 invoice owed.
“You want to get proactive with your invoices so if a collapse happens, you are not left with a pile of potentially worthless invoices”, says Wong.
“The goal is to have as little money owing to you as possible or as your accountant would say, reduce your Days Sales Outstanding (DSO).”
Wong says offering early payment discounts on invoices is not new, but technology has made it easy to add real-time discount calculation into all invoices – resulting in the automatic reduction in DSO.
“Real-time discounting is the next big thing because it factors in a time element to the discount and rewards the earliest payer. Basically, the earlier the customer pay, the bigger the discount.”
Besides early payment discounts, Wong suggests two important elements to incorporate.
“Your invoices must also allow online payments and have automated customer reminders set up, so you have an automated invoice workflow working for you, 24/7”.
“Get the right invoice workflow in your business and you have the best chance of being paid first. It’s the one thing every business should do.”
Wong adds, “The concept is very intuitive. Reward, remind and make it easy to pay you. Get these 3 pillars right and the probability of your invoices getting paid early will skyrocket.”
ASIC recently released insolvency figures (2)  showing a surprisingly lower than expected number of businesses entering into external administration during the pandemic relative to other years.
This is a sign that businesses have been relying heavily on pandemic relief packages to survive.
As Government relief winds down and with lenders set to become more aggressive in enforcing company obligations, this points towards a likely increase of insolvencies in 2022.
“You can’t control your customers, the industry or the economy, but you can take steps to reduce your outstanding invoices”, says Wong.
“By putting in place an automated invoice workflow with the 3 pillars of early payment discounts, on-line payments and customer reminders is the best thing any business can do right now.”
“This is the most cost-effective, systematic and reliable way for businesses to protect themselves from future customer collapses.”
Parakeet’s integration with Xero and Esker now allows businesses easy access to this technology.
Edited by: Stephen Morton