Did you know that a quarter of business failures are due to an interruption to cash flow? 40% of small-to-medium sized business owners say they would stop doing business with customers who paid late, while 90% said they would pay their own suppliers on time if their customers paid bills by the due date.
You know it best of all: when customers pay their bills late, it can hugely impact the cash flow of your business. But what about when it comes to the invoices that your company owes? This can also affect cash flow. So how can you pay all of your bills get paid on time and avoid a negative consequence?
Every business, no matter their size, industry, or location, is worried about getting paid for the services they provide. This is a particular concern when the product or service is delivered before the payment. By taking a new perspective on this, and reversing your position from business to consumer, you can see that when your company pays allows their invoices to go overdue, the problem is compounded.
The first thing to bear in mind is that it’s just plain unethical to pay your invoices late, provided there are no exceptional circumstances in which that’s not possible. And as referenced, you don’t want to model the very behavior that you don’t want to see from your own clients. Certainly it’s not illegal to let an invoice go past due, but you want to remain as principled and ethical as you can if you want to maintain a great reputation for yourself.
Credibility should be a crucial component of your own business aims, and paying on time will contribute hugely to establishing this virtue. Your vendors will have confidence in their relationships with you, and you’ll gain more savings, improve your cash flow (really!), and have more time to spend on other tasks. There really are a lot of sound economic reasons to pay every invoice on time.
Here are some more incentives to paying your bills as quickly as possible without affecting cash flow:
Maintain positive relationships
Late payments can be symptomatic of poor relationships between you and your suppliers. It often signals that the buyer is in difficulties, and by creating this impression, you may find a strained relationship where their business terms worsen for you the next time you try to work with them.
- Suppliers will be much more eager to work with you if you have an established good payment history
- You’ll save on strained relationships and mistrust
- It is much easier to negotiate the terms of your repayment when you have a good relationship with your vendors
- By ensuring prompt payments, you produce closer and more cooperative partnerships with other businesses as well as the vendors you work with
- You can feel confident approaching and continuing your relationships with vendors
- Establish trust and credibility by paying every invoice on time
- Vendors you’ve built a good relationship with will be more likely to reach out a helping hand if ever you find yourself in a bind, or needing a favor
- Close collaboration with your suppliers often leads to wider benefits
- Your own customers will benefit: those who take a personal interest in responsibility and efficiency will see this modeled by your company, and will reward your commitment
- Suppliers you’ve established trusted relationships with often pass on information to other suppliers about your reliability. This can lead to new business
Avoid additional expenses
Did you know that late payments can incur additional costs for your business? There is even legislation in place that gives businesses the right to charge interest on late payments.
- Late payment fees will negatively affect your cash flow. If you allow an invoice to go unpaid, you will be subject to the same penalties that you may impose on your own clients, at possibly higher percentages than what you charge based on how late a bill remains outstanding
- A negative impact on credit rating is another pitfall to late payments, and must be avoided at all costs if your business is expected to continue in any capacity
- With a damaged credit rating, it becomes harder to obtain funding
- Interest rates rise with bad debt
Maintain your reputation
The reputation of your business is of paramount importance. Continual late payments mean that others in your industry will regard you with mistrust, and your reliability will quickly lose traction.
- Networking is an important part of any business, and it provides the perfect place in which to pass on information about problems. If your company comes up as an example of bad payments, your reputation could be irreparably damaged, leading to a lack of customers and suppliers
- The internet is a hotbed of ratings and reviews, posted for everyone to see. If a vendor has written a bad review about late payments, this rating can be viewed by potential and current customers and vendors
- Don’t forget to positively rate your own payers–this will not only enhance their reputation, but will bolster your own. You may even find that this practice encourages others to do the same for you
- Clients will reward your commitment
The disadvantages of paying invoices late are wide-ranging: harming your reputation and diminishing your business, straining relationships with your vendors and damaging supply sources, and weakening the economy as a whole by constricting overall growth.
By retaining some of the information here about how to pay your invoices on time without affecting your cash flow, you can stop letting those bills pile up. And by automating, you can start noticing some significant improvements immediately.
Automate your accounts receivable today with a free 3014 day trial at Invoice Tracker.