How serious of a problem are late payments

Late payments are toxic to the growth, profitability, and sustainability of your business. What can your business do about this debilitating problem?

Ask yourself a question: Is your business moving forward or backward?

Many would enthusiastically respond, “forwards!” —perhaps with a focus on growing a larger customer base, acquiring more accounts, or diversifying their offerings, etc. Indeed, these are fine goals that promote growth and success. However, you need to ask yourself another question that can be just as important: Have you given attention to what’s still behind you? Late payments are a problem for both the profitability and success of your business.

How serious a problem are late payments to the success of your business?

Some view late payments as an annoyance that’s just part of doing business. However, to give proper weight to the matter, ask yourself one more question: Is bankruptcy just an annoyance? Because that is how this problem is currently affecting the EU. For example, in the UK, it is estimated that more than a fifth of small and medium-sized enterprises facing late payments are at risk of bankruptcy. It’s an even more critical problem in France, where a quarter of bankruptcies are related to bill-settlement issues. Do you still view it as just an annoyance?

To give a more concrete idea of how late payments impact companies, let’s examine a few payment figures from the credit insurance company Atradius. They noted that, for example, in Portugal, the average deadline for payment is among the longest in the EU, at 26 days. However, it took, on average, another six days to finally receive payment. In Ireland, the deadline for payment is 18 days, yet payments are received on average five days late. Italy averages 18 days for payment deadlines, but after five more days, the payment is finally received. Moreover, in the UK, the deadline for receiving payment is 14 days, but they can expect to wait at least a whole week for the payment to be received.

Just imagine how this common occurrence can affect your company: you go through all of the struggle and expense of doing business, only to have to guess when you will receive payment. Meanwhile, costs continue to accumulate, often with very little cash coming in to cover them. That’s not just an annoyance- that’s a serious problem, and one you need to understand to prevent it from crippling your business.

What causes late payments?

While there’s no end to the reasons that a payment might be late, the most common reasons identified by customers are as follows:

• Goods or services received do not correspond to what was agreed
• Unplanned financial difficulties
• Complicated payment procedures
• Disputes over the quality of goods or services.

A savvy business owner is wise to analyze these causes and see what they can do to minimize or even eliminate them on their side, even though the customer may be at least partially to blame. Take, for example, the first bullet point regarding goods or services differing from what was agreed upon. Have you ensured that your terms and conditions are tailored to your specific business? That’s what Factris CEO Brian Reaves recommends to give customers a crystal-clear picture of what to expect, thereby avoiding any murky business dealings. Another tip is to refine your payment procedures: for example, is there a better payment system than what you’re currently using, perhaps with features that might ultimately slay the late-payment dragon? Embracing tech solutions can not only save a great deal of stress, but it can also make your customers better informed and happier, thus eliminating potential issues that result in late payments.

Sadly, though, sometimes late payments are unavoidable, even in the most carefully managed business transactions. What should you do if late payments threaten to grind your business to a halt?

What solutions are available for late payments?

Such a sobering problem needs to be solved— and promptly —for your business not to get mired in debt resulting from payments still not received. With the delays, complications, and hindrances imposed on small businesses by traditional banking, it’s not a surprise that alternative financing is on the rise. This can be observed among many Western European companies as they respond to the benefits of financing of issued accounts, also known as factoring.

The EU Factoring and Commercial Finance Federation (EUF) reported that the factoring turnover in EU countries in 2018 exceeded 1.7 trillion euros, representing an 8% increase compared to 2017. Moreover, this isn’t new, either, according to the EUF. In fact, this marks the tenth consecutive year of growth, underscoring the fact that factoring is already playing an increasingly important role in business financing and development.

“Have some entrepreneurs already discovered this? Yes. However, they are not exploiting it to their full potential yet.” says Factris CEO Brian Reaves. Indeed, innovative solutions like factoring can be the lifeline needed for businesses that are in need of funds, often held hostage by late payments. However, these sorts of solutions aren’t implemented automatically; it takes a shrewd business owner to take advantage of them before the pain of late payments is felt.

We can’t help but look to the future- it’s in our nature as humans, and it is crucial for running a successful business. But a company can’t survive future challenges while still carrying the burdens of the past. Fortunately, some causes of late payments can be minimized or even avoided, and solutions to late or unpaid payments, such as factoring, are available. However, it’s up to businesses to pay attention to what has slowed them down in the past before they can fully press on towards the future.

This article has been revised by

Edmundas Volskis

Chief Risk Officer

Edmundas Volkis is a vital organization member responsible for identifying, assessing, and mitigating risks that could impact the company’s goals. In 2015, he was the first employee at Factris, besides the managing director.
Edmundas previously worked in data analysis and business consulting. The CRO deeply understands the organization’s business model, operations, risk appetite, and current and emerging risks that could affect the company.