Small Business Face Bookkeeping Challenges, Overdue Invoices During The Covid-19 Pandemic

Nida Bohunr | November 28 2021

Launching and running a successful business requires a perfect blend of instinct, inspiration, and skill. Today, small business owners cope with many challenges while the pandemic wreaks havoc and drives millions of such ventures to the brink of bankruptcy. According to the World Economic Forum, 34% of all small businesses have been forced to shut down in 2021 as compared to last January.

Small businesses face unique challenges, which have mounted over the past year or so. Many small business owners are struggling with significant accounting and bookkeeping concerns, including unprofessional accounting practices, negative cash flows, and unpaid invoices that have pushed their companies to run into losses. In such situations, they are forced to sell even their assets to settle the business debts or cover expenses.


Bookkeeping challenges that plague small businesses

Small businesses are regarded as the lifeblood of the economy; they provide basic and advanced goods and services to underserved market segments and generate employment for millions of people. As much as 99.9% of all businesses in the United States classify as small businesses employing 47.3% of the nation’s private workforce.

Bookkeeping plays an essential role in an organization in terms of cash flow management and the maintenance of organized records. Despite the many advantages of professional accounting, many small businesses rarely hire a dedicated accountant or bookkeeper, and instead, the owner takes up this responsibility as well. Not everyone is skilled at working with budgets and forecasts, and virtually every business needs accounting services to get a clear-cut picture of their performance in a given period.

Businesses bookkeeping challenges are varied and widespread – from cash flow problems to accounts reconciliation to overdue invoices that can turn into bad debts. Now is the time to adapt to the new and systematic accounting practices to match the new circumstances. Read on to find out the most common and pressing bookkeeping challenges during the pandemic, and find ways to adjust your accounting systems accordingly.


1. Cash flow problems

One of the most common problems for mom-and-pop businesses, even before the coronavirus hit, was the issue of maintaining cash flows. Many small ventures shut down in the first year of coronavirus breakout due to the inadequate management of cash funds.

Business owners often overlook putting money aside for future payments, taxes, or even unforeseen expenditures, resulting in chronic liquidity problems and negative cash flows. Due to the absence of savings, these businesses often find themselves borrowing money from external sources to buy more inventory or pay suppliers.

The pandemic has worsened the problem of debt repayment significantly. While an invoice should ideally take ten to fifteen days to settle payment, the pandemic has doubled or even tripled the time for payback.

According to a research study conducted by an H&R Block company, 17% of 1,008 micro businesses that were surveyed reported not being paid on the invoices sent out to the debtors. The same report also highlighted the fact that nearly 70% of these businesses had to wait between one to six months to get paid any amount at all.

Even legal action can prove to be problematic as small business owners often lack the resources to pursue the options that are readily available to large businesses and corporations to recover their debts. Nearly 25% of small business owners complained they had to wait over a year to be paid the amount they were owed.

Problems with payments on overdue invoices mean that these small businesses experience a vicious cycle of negative cash flows, which will hinder the growth of the business or a shift towards a different and improved business model, possibly leading to a feedback loop with fewer resources, dipping sales and, subsequently, bankruptcy.


2. Payment Problems

Small businesses often run into overdue invoices or bad debts due to their choice of repayment methods. Most small businesses lack a digital payment system, relying instead on paper cheques or hard cash to enact transactions. Their reliance on these payment methods exacerbates the already precarious cash flow situation.

These arrears can also lead to a higher churn rate, meaning the rate at which customers cease doing business with a company. A higher churn rate can lead to a further decline in revenues and cash flows as customers cancel their subscriptions or turn to competitors. This can pose serious challenges to small businesses, which often rely on a small core customer base for their earnings.

To remedy this state of affairs, small business owners can look into digital payment mechanisms that can readily detect overdue invoices and warn them before the problem escalates. Companies allowing debit and credit card purchases are also more likely to get paid in a timely manner. By implementing a more stringent payment policy, owners can remedy numerous bookkeeping bottlenecks and turn around the company during the pandemic.


3. Chasing Payments

A significant amount of time and energy is spent in trying to recover funds from late payers and defaulters. According to Intuit, before Covid-19 hit, small businesses spent as much as a week in accounting hours every year just trying to recover customer debt payments.

Business owners often spend too much time and resources trying to figure out the late invoices from the paid ones and prioritize them accordingly. Even though it is one of the most critical small businesses challenges, only 11% of small businesses use a proper bookkeeping resource to aid them in highlighting late payments. Instead, countless hours are wasted in resolving the issue of overdue and unpaid invoices.

Small businesses stand to benefit significantly from implementing professional accounting practices and automated bookkeeping structures. Doing so will not only help you to defeat

many small business bookkeeping challenges but also free up time for the owners to revitalize the business.


4. Keeping up with industry changes

The pandemic has worsened business bookkeeping challenges. Today, startups and small enterprises face many significant small businesses bookkeeping challenges, particularly relating to overdue invoices. This situation leads to additional problems in cash flow and the time spent trying to recover the payment. It further leads to customer churn as they prefer alternatives to the business.

By implementing professional accounting solutions, such as digital payments, automated invoice receivables systems, and discounts to early settlements on invoices, companies can mitigate the adverse impact of small business bookkeeping challenges and ensure business survival even during the pandemic.

See Also: Top 10 Common Bookkeeping Mistakes


What’s best for your business?

At Monily, we are dedicated to providing you innovative accounting solutions that will help you achieve business stability even during the uncertain times of the pandemic. We are your trusted partners when it comes to streamlining finances across the board  – whether it is about ensuring on-time bill payment and receivables, managing cash flows, or eliminating the stress from your accounting function.


Author Bio

A highly skilled accounting professional at Monily, having extensive and diverse experience of working in US healthcare and agriculture industry. Nida is a CA finalist with expertise in Bookkeeping, Auditing, Bank Liaison, Tax Preparation, Accounts Payable, Accounts Receivable.