One of the toughest challenges for businesses is ensuring customers pay their bills on time. In fact, a third of all businesses surveyed by CreditSafe report regularly dealing with overdue payments—totaling up to $70,000 per month.
The Cost of Late Payments report revealed that nearly a third of respondents lose between 5% and 30% of their annual revenue to bad debt. However, just 2% reported losses exceeding 30%.
The Factors Slowing Down Payments
The reported losses are partly due to finance teams not consistently performing due diligence. A majority of respondents admitted they don’t always analyze a potential customer’s historical trade payments and late payment trends before signing a contract. Indeed, 17% said they rarely or never do so.
However, B2B payments can be delayed by factors beyond a customer’s ability to pay.
“Slow payment problems are often related to slowness on the buyer’s part to approve invoices, particularly for big buyers with byzantine approvals processes,” said Hugh Thomas, Lead Analyst of Commercial Payments at Javelin Strategy & Research. “Some suppliers may want to consider offering solutions that enable a pre-approve/post-audit process. Commercial cards work well for that, as their final payment amounts are so easily fungible as opposed to checks or ACH.”
Chasing Down Customers
Finance teams often spend a lot of time chasing customers for overdue invoices. The vast majority of the Late Payments survey respondents reported needing to contact a customer between one and four times just to secure a single overdue invoice. Nearly a third said they were willing to wait between 31 and 60 days for customers to pay up to $50,000 in overdue invoices.
Thomas suggested that a carrot-and-stick approach can help address late B2B payments. The carrot often comes in the form of 2/10 Net 30—offering a 2% discount if the full amount is paid within 10 days; otherwise, the full amount is due within 30 days.
The stick typically involves enforcing delinquency terms on invoices if buyers fail to meet payment deadlines. For regularly delinquent buyers, businesses may consider requiring prepayment to mitigate risk.
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