It’s a lament I’ve heard countless times from business owners and office administrators.
Though, curiously I’ve never heard it from larger businesses with a finance team of 10 or more.
For some reason, larger businesses have a much more pragmatic view of late payment. It is more viewed as a fact of life – so you manage it, and manage it well. After all, the larger business has the resources to do it well.
In addition, typically they have larger customers, who consistently pay on time, on the 20th. This means that late payment by their SME customers is not going to put them out of business. They know that most will pay eventually when they have the cash – some have said to me, it’s simply not worth burning bridges and their brand by taking a hard line with slow-paying SMEs, I think they appreciate or empathize with their cash flow reality.
Lastly, for larger businesses, the issue of late payment is not personal, so their response is measured and planned, unlike a smaller business where these conversations can get quite heated!
Do we really have to accept late payment as a fact of running a business?
Are we selling ourselves but not pushing for an on-time payment standard? Especially given the impact on the businesses who are waiting longer than they should for their cash to come in and relying on overdrafts and credit cards to meet payroll. That side of the coin is also unacceptable.
I think we can all agree on two things, in an ideal world:
- Businesses should pay their invoices on time. They also should not commit to buying things they actually can’t afford.
- Businesses who offer credit, should not have to wait beyond their agreed terms to be paid and incur the time and interest expenses resulting from late payment. This is wrong.
Who’s fault is it? Why does it happen?
It’s well known that small businesses are particularly poor at managing their cash flow. It’s one of the reasons why their failure rate is so high.
Let’s break it down:
- They commit to purchases they can actually only afford if their most optimistic sales forecast comes true AND their own customers pay them on time and don’t turn into bad debts.
- They spend more or draw down more than they should, instead of paying themselves a regular wage.
- They fail to account for tax bills.
- They get overworked or burned out, and make poor decisions.
- They offer credit to everyone, with little plan to collect the cash on time.
What’s our response?
Until something fundamentally changes in the way B2B commerce plays out, I think we can all agree that late payment will continue to be a fact of being in business. This means we all need to plan for it. And if you’re a small business, then you need to make planning for it a priority – because it’s going to happen, most months of the year.
Here are my tips for minimizing the impact late payment has on you and your business.
Be proactive, don’t be pissed-off
Getting pissed off with a customer usually makes things worse and burns energy you could use elsewhere.
Create your late payment strategy in advance
Can you answer the following questions:
- Who should get credit, and how much? Are there certain types of customers or products that should not be eligible for credit?
- What’s the process you follow every time when customers pay late? Do you give some customers extended terms or more rope? How will you manage that well?
- What finance facilities do you have in place to cover any shortfalls? Overdraft? Credit card? Are the costs of offering credit appropriate or could they sink you?
- How will you handle customers that can’t or won’t pay? Will you allow customers to drip-feed payment over time? How will you manage it? How will you know when to send a customer to the debt collectors?
If you can’t answer these questions, then book a demo, to help you answer these questions once and for all, so you can get on with doing what you got into business for, which wasn’t fretting about late payers 🙂