Around 48 percent of B2B invoices are paid after their due dates, with 92 percent of businesses reporting late payments in total, according to Atradius. Because delinquency is so common, many company owners shrug it off as a hazard of doing business. If your customers are slow to pay, though, it’s hurting you more than you think, but you can take steps to correct it. Here’s a quick look at what’s happening in the background when your inflows aren’t flowing.
1. Your Vendors Get Antsy
Just as you rely on your customers to pay promptly, your vendors rely on you as well. Many small businesses simply can’t afford to wait for payment, and even those that can may stop offering favorable terms if they have to wait for payment from you. This is widely-known to be one of the major sources of anguish for retailer Toy ‘R’ Us. Vendors failed to deliver at pivotal points—namely the holiday season—all because they feared they would not get paid. With poor stock during the peak sales period, the company failed to meet its goals and went under.
2. You Pay Late Fees
It’s easy to see those dollars and cents add up if you’re not making payments on your personal accounts. Your mortgage lender may tack on $50, while your phone company adds $25. That happens to your business too, and when you’re short on cash, you’re probably missing multiple payments with much higher penalties. It’s easy to lose hundreds, if not thousands, of dollars each month in penalties if you aren’t making prompt payments.
3. Your Top Talent Leaves
If you miss a payday or are slow to pay, there’s a good chance your employees aren’t going to stick around for long. However, you may lose people long before it ever comes to that. Employees talk. If you’re missing other payments or it becomes known that the business is struggling, people may flee in advance to avoid missing out on pay—just like vendors do.
4. You Lose Out on Sales and Marketing Growth
Marketing always seems to be the first thing to go when a company is strapped for cash, but this also stalls growth, often locking the business into a stalemate. Worse yet, the sales team often gets retasked to collections, so they can’t bring in new business either. With no new customers, the company withers and dies.
5. You Miss Out on Opportunities
“In economics, one of the most important concepts is ‘opportunity cost’ – the idea that once you spend your money on something, you can’t spend it again on something else,” says Malcolm Turnbull, Australian Prime Minister. Of course, if your money is tied up in invoices, you’ve essentially chosen to spend your money on waiting.
Being able to capitalize on opportunities as they come up is integral to the success of any business. Unfortunately, when a company lacks the capital necessary to act, a whole series of losses can occur. Perhaps the business can’t go for a new market, purchase a competitor, or tweak a product to fill a hole.
6. Your Billing Costs Go Up
Collecting payments costs money. If you’re still using paper processing, you’re investing in a fair amount of labor costs just to get the invoice in the mail, and you’ll keep paying every month until the customer pays. Of course, it’s pretty rare to just send out paper invoices. At some point, someone is going to be reviewing delinquent accounts and placing phone calls. Chasing the cash costs even more.
7. The Likelihood of Collecting Anything Goes Down
“The longer the receivables remain outstanding,” explains an Atradius report, “the lower the likelihood of turning them into cash.” Businesses forget they owe, they prioritize other things, they find it easier to work with someone else rather than pay, or any number of things might happen. It’s essential to collect promptly, when you’re fresh in the minds of your customers, or they may not pay at all.
8. Your Stress Levels Skyrocket
“Researchers have long known that money worries contribute to health worries. Financial stresses have been linked to migraine, cardiovascular disease, absences from work, insomnia, and more,” says Rachel Nall, RN for Everyday Health. It seeps into other areas of your life too, and can even impact your relationships with loved ones. From a business side of things, ongoing stress can cloud your mind, make you short-tempered, and reduce productivity as well.
Correct Your Slow Payment Problems with Invoice Factoring
Invoice factoring is the process of selling your invoices to a third party. You get your money right away and the factoring company handles the collections process for you. Learn more about how factoring can help your company grow or get your free factoring quote today.