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Survey: Unpaid Invoices, Poor Bookkeeping Put Microbusinesses at Risk

The nation’s largest collection of businesses can’t get paid on time.

A new survey out by money management solution provider Wave shows that roughly a quarter of owners of microbusinesses – defined as any company with fewer than 10 employees – have either waited more than a year to get paid, or haven’t been paid at all, for at least one piece of work performed.

Worse? Overdue invoices have affected a full 70% of respondents, who said that they have waited between one and six months for payment.

That’s a problem on multiple fronts. For one, microbusinesses represent the largest group of America’s businesses – by a mile. Namely, the Association for Enterprise Opportunity says microbusinesses comprise 91% of all U.S. businesses. But also, given their diminutive size, they’re also the least capable of being able to withstand late payments or even nonpayments.

The following are some highlights from Wave’s study, including more microbusiness bookkeeping problems and how these companies have pivoted to survive COVID.

Findings From Wave’s Microbusiness Survey

The consequences of late payments

Microbusiness owners who had to deal with late payments often had to take strict measures to make up for the shortfall. Among them?

  • 30% had to borrow from personal funds.
  • 19% borrowed from family or friends.
  • 19% had to forgo or reduce their own paycheck.
  • 13% were forced to take out a loan.
  • 11% had to take another job.
  • 8% went so far as to sell a family heirloom or another valuable.

The very clear takeaway is that missed payments have severe consequences for microbusinesses – and that burden often falls directly on the owner’s shoulders.

Why were the payments late?

The pandemic had an obvious effect on businesses’ ability to pay invoices, but that wasn’t the only reason invoices were delayed. Of the four primary excuses:

  • 34% did not have the money to pay.
  • 33% simply forgot.
  • 24% claimed that they never received the invoice.
  • 13% said they were on vacation.

Late payments aren’t microbusinesses’ only problem

Wave’s survey found that microbusiness owners fessed up to a number of poor money management habits:

  • 38% said they used their personal checking account for small businesses.
  • 29% said they don’t separate personal and business finances at all.
  • 22% track their finances with paper and pen (14% use an Excel spreadsheet).
  • 21% don’t log or track receipts.
  • 14% don’t follow up with customers on outstanding invoices.
  • 13% admit to sending late invoices or forgetting to send them at all.
  • 11% say they rely on high-interest financing to fund their business.

Microbusinesses making the shift to digital

Like with much larger businesses, microbusinesses understood that in many cases, the only way to survive was to go digital during the COVID-19 pandemic. And a lot of those practices are sticking.

For instance, 27% of microbusinesses started virtual services, such as sales, consultations and quotes, during COVID-19, and expect to continue them after the pandemic has ended. Fifteen percent say the same about adopting digital banking and checking, and 8% say the same about sending digital invoices or doing digital bookkeeping.

Meanwhile, 18% say they plan to stop visiting bank branches to deposit checks, 13% will end in-person meetings with accountants to pay taxes, and 12% say they’ll eventually stop sending paper invoices and do online bookkeeping.

Get Your Money Matters Under Control

Microbusinesses can’t blossom into small, midsize and even large businesses if their finances collapse. And that’s a very real danger. Consider the lengths this survey shows microbusiness owners must go to just to recover from a few unpaid invoices.

It’s critical to get a firm hold on your finances early on in your business’s life. McManamon & Co. can help via a wide range of accounting, tax and even consulting services. Give your business its best chance for success. Call us at 440.892.9088 or contact us online today.

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