How Chargebacks Cause Cashflow Issues & What to Do?

Cash flow problems are having a serious impact on small business owners — financially, emotionally and administratively, according to a recent survey. Is your company among those suffering?

More than four in 10 (41 percent) of small business owners in the WePay SMB & Money Survey have experienced cash flow challenges. Of those, the majority (59 percent) say the financial impact on their businesses is consequential or highly consequential. Beyond the monetary issues, 56 percent say the emotional impact is consequential or highly consequential, while 44 percent say the same for the effect on administrative processes.

The survey focused on cash flow issues resulting from payment problems. Here are some common payment challenges that small business owners face:

  • Just one-third of small business owners say they get paid immediately for their products or services.
  • 12 percent say it’s standard for customers to take one month or longer to pay.
  • 10 percent say they have had customers avoid paying for 181 days or more.

In addition to late payments, customer payment fraud is a serious problem for entrepreneurs in the survey.

  • One-fourth of small business owners say they have had a chargeback in the past year. (A chargeback is a disputed or fraudulent transaction that ends with the business owner having to make good on the loss.)
  • Multiple instances of customer payment fraud are common; in fact, 8 percent of those who have suffered customer payment fraud say it’s happened 10 times or more.
  • Customer payment fraud is an early and ongoing problem. 21 percent of entrepreneurs hit by customer payment fraud say it started within a year of opening their business; 51 percent say it started within two years.

Small business owners in the survey who handle customer payments within the same software apps used to manage their businesses, such as Square or Shopify, report having fewer cash flow problems. Does using fewer apps lessen the risk of payment fraud? The survey isn’t conclusive, but it seems to me that the fewer apps and steps are involved in issuing invoices, accepting and processing payment, the fewer opportunities for errors exist.

The following tips can help you get a grip on your cash flow:

  • Monitor your cash flow weekly (or more often if you’re really having problems) using your business accounting software.
  • Invoice customers as soon as possible. Instead of waiting until the end of the month, invoice as soon as the product or service is delivered.
  • Follow up on invoices promptly. Many accounting or invoicing software apps can automatically follow up with customers as soon an invoice is due.
  • Go online. Fifty-eight percent of small business owners in the survey say they visit their bank daily or weekly to deposit cash or checks, so if you’re still sending invoices by mail and waiting for checks to arrive, you’re not alone. However, you are wasting a lot of time. Get set up to issue invoices and accept customer payments online and to deposit checks from the comfort of your office by scanning or snapping a photo with your smartphone.

Chargebacks most often happen to e-commerce businesses; customers will claim an item never arrived or was not as described on the website. You can reduce the chances of chargebacks by:

  • Setting clear shipping, return and exchange policies
  • Providing detailed descriptions and multiple photos of products on your website to eliminate disappointment
  • Using online tracking when you ship an order
  • Responding quickly to customer complaints and problems. Ideally, you can resolve the issue without the customer going to their credit card company.

About the author: Sidney R

Sidney is an editor and copywriter for Top Online Store Builders, covering topics ranging from starting an online store from scratch to all aspects of ecommerce marketing and cyber-security. When not writing, Sidney can be found hiking, traveling or surfing.

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