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Small Businesses Struggle With Year-End Payment Problems, Survey Shows

12/11/2017 11:14 EST | Updated 12/11/2017 13:59 EST
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By Rieva Lesonsky

The end of the year is a good time for small and midsize business owners who benefit from U.S. consumers’ holiday spending spree. Twenty percent of the annual revenues the average small and midsize business earns comes in between Thanksgiving and Dec. 31, the second national SMB & Money Survey reports.

For companies that sell products, this time of year is even more profitable; they earn an average of 28 percent of their annual revenues at year-end.

But it’s not all good news, according to the survey, which was conducted by Survata for WePay. More than 70 percent of the business owners surveyed say they faced at least one serious business problem during last year’s holiday season, the most common being late payments.

More than 21 percent of small and midsize businesses surveyed struggled with late payments between Thanksgiving and Dec. 31, 2016. What’s more, over two-thirds of those surveyed say at least 10 percent of their customers fail to pay on time.

Cash crunch

When your business doesn’t get paid on time, it not only puts a major crimp in your cash flow, but it also eats up valuable time you could be spending on more important things. Nearly six in 10 business owners in the survey say they have to follow up at least twice to get late-paying customers to meet their obligations.

Even small business owners who get paid immediately at the point of purchase, such as retailers and e-commerce businesses, struggle with their own financial issues during year-end. More than one-fourth (26 percent) of respondents say they lost money to fraud or chargebacks (disputed charges) in the last 12 months; 22 percent of those lost $5,000 or more. Making matters worse, if you have too many chargebacks, you may run into problems with your payment processing company.

RELATED: 4 Rules to Cure a Cash Flow Crisis

Protect yourself

If you don’t want to be one of these statistics, it’s important to take steps to protect your business. Here are some tips to reduce chargebacks:

  • Analyze the reasons behind your chargebacks. Chargebacks can be caused by credit card fraud, such as stolen cards, or by “friendly fraud,” in which customers order products online and then claim they never received them and ask for a refund. If your website doesn’t provide accurate, detailed product descriptions, you may also end up with a high number of chargebacks from dissatisfied customers when the products aren’t what they expected.

  • Maintain proper website security and follow the payment processing protocols recommended by your payment processing company.

  • Make sure the descriptor (the business name that appears in customers’ credit card statements) is recognizable as your business. When customers don’t recognize a descriptor, they often assume they’ve been charged in error and dispute the charge.

  • For sales transacted in person, always check the customer’s identification and make sure that the signature on the credit card matches their signature.

If your problem is late payers, the best defense is being proactive. Follow these tips to get your customers to pay on time:

  • Send invoices immediately upon delivery of products or services. Use electronic payment acceptance and online invoicing to speed things up.

  • Make sure you send your invoices to the correct address, department, and individual.

  • Design invoices that are easy to read and clearly state the amount due, due date and how to pay.

  • Follow up with customers as soon as a payment is late. The faster you act, the more likely you are to get paid before the year is up.

  • For customers that consistently pay late, you’ll have to consider whether it’s worth continuing to do business with them. If you decide to keep working with late payers, institute policies to protect your business such as requiring cash on delivery or partial payment upfront.

Financial issues can quickly spiral into ongoing cash shortages that can destroy your business. Whether your money problems spring from chargebacks, fraud, or late-paying customers, take steps to get them under control before year-end.

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Rieva Lesonsky is CEO of GrowBiz Media, a media and custom content company focusing on small business and entrepreneurship. Email Rieva at rieva@smallbizdaily.com, follow her on Google+ and Twitter @Rieva, and visit her website SmallBizDaily.com to get the scoop on business trends and sign up for Rieva’s free TrendCast reports.