Can You Afford To Keep Customers who continually pay late?

If a customer persistently pays late or makes excuses, check them out and consider whether you’re prepared to continue supplying on credit terms. It may be better to lose an order, or even the customer, than to provide goods or services and not get paid and suffer a bad debt.

Use language such as “Payment Overdue” to be as transparent as possible. Indicate on the invoice at what point customers will be charged a late fee: See The Late Payment Act – https://www.legislation.gov.uk/ukpga/1998/20/section/2  Consider offering an incentive for early payments or cash/payment on delivery.

Good cash flow will make the effects of late payments more manageable. However, it’s worth pointing out when a business or individual fails to pay on time, they fail to honour their side of the contract. The nature of business is that one side agrees to perform the service or supply the goods, and the other agrees to provide money in return by an agreed time. It would be entirely unacceptable to withhold an employee’s salary past payday. There are penalties for paying tax late, but it seems acceptable to some businesses that late payment on a business invoice is OK. Perhaps they are using your money to pay their staff!

Larger firms are likely to have resources committed to credit control, and they will have staff and systems to ensure their invoices are paid on time by their customers. Even though they’re likely to have cash reserves and available credit, they are less likely to draw on them as they may have a large customer base and upsetting a few by asking them to pay on time isn’t such a problem.

Compare this with smaller businesses for whom chasing unpaid invoices takes away time they could spend on running the business. Every customer is important, so business owners can be unwilling to risk ruining a relationship by chasing late payments. In most cases, the companies that can least afford to be paid late will most likely tolerate this burden. Unfortunately, the larger businesses are often the worst offenders when it comes to paying their smaller suppliers late.

Late payment can push businesses into insolvency.

Operating costs are higher than ever, and a business will eventually have exhausted every revenue stream while waiting for overdue invoices to be paid. When this happens, there’s a real risk that the company may go out of business.

A cash-starved business can try to survive by taking more extreme measures, for example, putting off hiring new staff or investing in new equipment. Directors may even resort to more risky funding methods, such as remortgaging their homes. They could reduce staff hours to cut employment costs, but there’s a chance they could lose their best staff, and the company may be unable to pay their suppliers and risk late payment fees or reduced credit terms.

Ultimately, too many unpaid invoices will result in even a well-run, otherwise profitable business being forced to close.

What can be done?

In a perfect world, everyone would pay on time, but if you or your business are struggling financially due to late payment or non-payment of invoices, contact DSL to find out how we can help. The sooner we are on your side, the sooner we can help.

Contact Mike, Martin or Linda on 01527 543672 – email – info@dsluk.net