Tackling those late payments
Kevin Kevany reports on how changes to the way businesses manage debtors is helping protect the lifeblood of business – cashflow.
You might find this hard to believe, but New Zealand SMEs are sitting relatively pretty when it comes to debtor’s days and cashflow. We’re even better off than Australia.
And there is considerable international interest in the lending model we use because, simply put, we Kiwis do it very well.
That’s because a quiet revolution has been taking place in our secondary financial market, now that the duff financial institutions are largely exterminated. And the result is ‘world-leading’.
Certainly that’s the view of the CEO of Lock Finance, Simon Thompson, who should know, having been asked earlier this year by the World Bank to speak at its Conference on SME Finance held in Rio. And he has provided expert knowledge to the World Bank training projects in China and Cambodia.
The World Bank is currently leading a major programme to improve finance for SMEs by pushing for legislative changes, and by educating the banking community to accept a more diverse range of SME assets (such as plant, inventory and account receivables) beyond traditional security, such as property-based assets.
“New Zealand SMEs can count themselves lucky given the country currently has one of the best-in-class models for extending financing for small businesses,” says Thompson. “Our financial institutions are more proactive in helping raise financing for SMEs – examples being invoice-based financing and factoring, among others. Other countries are still focused on traditional asset-based lending.
“World Bank statistics show SMEs worldwide continue to face difficulty getting financing. There are about 400 million SMEs in emerging markets (excluding the OECD countries), but only about 20 percent of them have any form of loans or overdraft. In Asia, more than two-thirds of those surveyed said they were unable to access loans (‘unable to provide any form of property as security, and 20 percent would not even try applying to banks for credit’),” Thompson adds.
He reckons few SMEs have property assets, yet banks and lenders still want property security.
“In this area we lead and are now seen as a ‘best practice’ country, with a very good legal framework (based on our Personal Property Securities Act); a well-used online security registry system; and active market lenders, such as my company, who do not need property security when lending to the SME sector.”
Thompson is supported in this by the latest, and biggest, newcomer to the New Zealand market. Bibby Financial Services, one of the world’s largest non-bank specialists in invoice finance, opened an office in Auckland earlier this year. Headed by New Zealand sales manager, John Blackmore, with 24 years experience working for non-bank and bank lenders locally, Bibby offers specialist ‘invoice finance solutions’ to SMEs, particularly those with an annual turnover of between half a million and $5 million.
Blackmore’s comments confirm the observation of the changing scene described above.
“Banks still dominate the market; however, the important secondary market has been badly affected with a number of finance companies failing over the last few years. This has created opportunities for new finance companies, such as us, to enter the market and offer more flexible and alternative forms of funding.
“Many of the 460,000-odd SMEs employing fewer than 20 people have difficulties securing finance to grow or manage cashflow to stay on top of statutory liabilities, wages and funding sales. Some have no property to borrow against, are fully drawn, or require more funds to underpin expansion when new business opportunities arise.
“Invoice finance will be particularly valuable to these businesses,” says the man with “a total passion for the new financial models” who confesses to being “excited everyday at the opportunities being ignored by the banks”. He is also keen to get Kiwi accountants fully behind this evolution.
While a number of accountants are, to put it mildly, ‘still cautious’ on the subject, a range of institutions are opting to go the new route, as they recognise that their customers also have cashflow problems with joining fees and annual lump sum payments.
Delayed payments
Invoice finance operates by providing a company with cashflow while waiting, often up to 60 days, for invoice payments. The service typically advances up to 85 percent of the value of each invoice, and cash within 24 hours, to bridge between invoicing and payment. Once payment has been received, the remaining 15 percent, less a service fee, is returned to the client.
That said, Dun & Bradstreet’s latest business-to-business Trade Payment Analysis for the June quarter, revealed more than half of our local firms delayed payments to each other over the last quarter, with an average payment term of 45.8 days.
This was nearly two days longer than 12 months prior and is indicative of the cashflow pressures many businesses are still facing. (Australia is just over the 50-day mark.)
Blackmore expects we will follow trends experienced in other markets and uptake will grow significantly. In Australia, the invoice finance sector has grown tenfold over the past decade.
Being vigilant
Ezidebit, established here in the mid-2000s, claims to be ‘New Zealand’s leading provider of outsourced payment solutions’ by virtue of processing in excess of half a million transactions a month on behalf of more than 5,000 businesses. Clients are predominantly SMEs.
It’s doing something right, having experienced approximately 20 percent growth in the past financial year. 
“In a tight economy, businesses need to be particularly vigilant about getting paid on time, and regularly, to keep cash flowing,” says Ezidebit GM sales and marketing, Rob Baird. “By using Ezidebit, businesses firstly remove the need for having to ask for money from clients or customers, and instead ask once and never have to ask again. Secondly, our direct debit functionality, which is custom-created to integrate with existing client systems, enables businesses to control when they are paid; at the same time as significantly minimising administration costs and processes, and streamlining client relationships,” Baird says.
“One of the leading reasons why many local SMEs fail is because customers don’t adhere to billing periods, be they seven days, 30, 60 or longer. A critical mass of outstanding payments can be the ‘closure calling-card’ for businesses of all shapes and sizes.”
By facilitating electronic payments through bespoke direct billing systems, on a regular or one-off basis, Ezidebit ensures companies are paid on time – with client agreement.
“This streamlines client-business relationships and ensures business cashflow, in the majority of cases injecting a significant amount of working capital into a business’s accounts,” says Baird.
“Not only is the Ezidebit functionality a coup for businesses, but it works in favour of the client or customer as well, in locking down payment dates and amounts, so they too can ‘set and forget’.”
PayTorque positions itself as being ‘for those that want to change the game’ – being proactive in dealing with cashflow problems via their software solutions.
The impact of late payments


“Few SME owner/managers truly understand the impact late payments are having on their cashflow until they have it quantified,” says Lance Wickman, CEO of PayTorque. “For example, a ten-day reduction in debtor-days for a company with an annual turnover of $10 million will release around $274,000 back into their cashflow. At 9.5 percent (OD rate) that will cost more than $26,000 per annum.”
Over the years a lot of focus has gone into improving and automating the sales and marketing effort within businesses, but not a lot has changed in the way firms get their money in, Wickman says. “So we’ve taken a fresh approach to the entire process, and using a combination of software and communication tools, have come up with an innovative way to reduce costs, improve the customer experience, and help businesses to get paid sooner.”
PayTorque produces ‘interactive’ invoices which, at the click of a button, enable customers to make e-payments, set auto reminders, or place feedback about issues they are having.
“Finding out about any problems early will allow you to remove the barrier to payment swiftly before it becomes a dispute.”
Next comes debtor management. Here they automatically compile any number of personalised and customised communications, including reminders and escalating ‘dunning letters’ and send them out electronically or on paper. Electronic messages can be tracked for open and click through status. Cost savings are substantial (8.3 hours work for every 100 manual reminders) and a consistent approach to debtor management is achieved.
PayTorque focuses on the swampy bog of internal workflow and management reporting too.
“What typically happens when the owner/manager discovers a problem with the invoice, service or product delivery? You have to call/email the right person to sort it. How do you track progress and know the issue is resolved? Not easily.
“So our system allows tasks and even sub-tasks to be assigned to the appropriate staff for attention. These tasks are tracked, and once completed, communicated to the owner/manager.”
And then there’s the ultimate in proactive cashflow management – the ‘client portal’.
“We provide rapidly-deployed ‘client portals’ which look just like an extension of an SME’s website. Clients can view their accounts online, give feedback, make payments and even download/upload documents via this secure portal solution,” says Wickman, noting PayTorque can enable invoice factoring as an additional payment option.
They also offer a free, online credit management ‘Bill-to-Bank’ self-assessment and ‘10 ways to get paid sooner’ guide.
Direct debit
The last word is with Allan Dickinson, CEO of Debitsuccess, which has been providing billing services for the New Zealand fitness industry since 1994, and is now one of the largest full-service ‘direct debit initiators’ in Australasia.
“Debitsuccess is changing the way people pay for services. After the wake-up call of the global financial crash, Kiwis are reducing the use of their credit cards and paying effectively ‘as they use’ services (without interest charges), and the providers are happy with secure cashflow provided by our Online Management Gateway (OMG) software for managing customer relationships.”
According to Dickinson, clients, which include Super 15 rugby clubs, golf clubs, the Warriors, distance-learning centres and an international insurance giant, describe OMG as being “like having a salesperson working 24 hours a day”.
He points to their innovative work with golf clubs as to how they are ‘changing the way people pay for services’.
“It’s well-known that golf club membership has been struggling in recent years. Younger players have shied away from committing to paying large annual lump sum fees, and many current players have decided to just play casually. Nearly two-thirds were holding back on membership due to ‘the lack of payment flexibility.”
So Debit success created ‘FlexiSub’ with the option of paying on any day, at any frequency. At the Manor Park Golf Club membership took off.
“We’ve had nothing but positive responses to it, with about 14 percent of our members (mainly youngsters) paying their membership this way, which bodes well for the ongoing growth of the club,” reports club GM Steve Wallace.
That’s an excellent example of how the response of smart, niched financing options is radically altering the established way of doing things. Give some thought to what your company might change to secure cashflow and survival.
Kevin Kevany is an Auckland-based freelance writer.



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