September 14, 2022Late Payments
Small businesses don’t have the luxury of safely waiting for customer payments.
In fact, just one late payment could have a catastrophic on an SME. Unfortunately, nearly 84% of small businesses deal with late payments, with one out of every 50 businesses waiting more than 90 days for payment.
When SMEs don’t receive payments on time, it can lead to cash flow problems that threaten the survival of the business.
Late Payments and the Domino Effect
Small businesses don’t usually have the working capital needed to cover the gaps that occur between filling and delivering an order and receiving the customer’s payment.
However, few customers may have the cash on hand to pay for orders up front, while others won’t pay until the goods are in hand.
SMEs lose out on accounts and sales if there isn’t an invoicing option.
There is always a risk when offering trade credit or establishing invoicing terms, but there is also a risk of losing business unless these services are offered.
The domino effect is the fallout from invoices that are unpaid or paid late.
An SME may have the money or credit needed to fulfill one order, but without payment from the customer, the business is left unable to pay its own suppliers for the next order.
Because of the interconnected nature of supply chains, this can have a ripple effect that drastically impacts the industry.
Most payment terms are net 30, which can already be pushing the limits of a company’s ability to meet its own obligations.
Payments that come 20 to 30 days late mean a business could be going 50 to 60 days without an influx of cash.
Late Payments and the Administrative Burden
Chasing down payments creates a heavy administrative burden on SMEs.
It takes both time and money to go through past due accounts, find contact information, make phone calls or send out past due invoices.
It costs money to use a third-party collection service or legal aid to help motivate customers to pay.
More than half of SMEs spend 14 hours a week tracking down payments.
The work that goes into collecting payment detracts from other important tasks that keep a small business running.
It also siphons money away from things like marketing or product development.
Non-payment sabotages a company’s ability to hire for things like sales or marketing and keeps a company from giving out raises or bonuses.
This destroys company morale, potentially leading to retention problems and the additional burden of recruitment costs.
Late Payments and Stalled Growth
Without a reliable stream of cash, SMEs can’t pursue growth plans or investment opportunities.
Cash must be prioritized for day-to-day operations. Bills that can’t be paid or credit lines that are overextended can ruin bargaining power and favorable pricing.
Growth stalls and the business could quickly fall into insolvency.
Stopping the Damage of Late Payments
Having a system in place that not only authenticates the creditworthiness of a customer but also handles invoicing and payment notifications can reduce the damage late payments can do to your SME.
PencilPay is the solution. Contact us to find out how our automated software solves your payment problems.