The Impact of late-paying customers to your business

Sema Fongod
Head of Digital
Touch Financial
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Every business relies on the sale of its goods and/or services in order to generate income. Making a sale is a very important component of your cashflow. explains how to eliminate the worries associated with late-paying customers.

Once you make a sale, your sales ledger is credited with the sales amount. However, it’s your income statement balance that matters. Making a sale is important, but collecting the money for the sale is even more important. You do not receive any income if you do not collect sales payments from customers.

Many businesses fail they run out of cash, even though they might have a huge chunk of payments outstanding to customers. If your business sells on credit terms of up to 90 days, you need to have adequate working capital to meet your business’ requirements during this period.

Having debt unpaid for long periods could have a devastating effect on your cashflow. Remember, you will have to pay your suppliers, tax bills and staff. Businesses that rely on one or two customers could easily become bankrupt if they accumulate a lot of unpaid debt.

In a worst case scenario, such as your customers defaulting on payment terms, the bad debt amount could be written off as an expense to your already cash-struck business. This is the last thing you need, especially in this difficult economic climate.

Tips on how to avoid late payments

Here are some tips on how to avoid late and overdue payments from your customers:

  • Ensure that every invoice for a commercial sale has a specific repayment date on it.
  • Start talking to your customers about their payment terms very early in the sale process
  • Process your invoices in a timely manner and send to the customer
  • Be aware of the status of an invoice within a pre-defined period, say within seven days of the sale
  • Regularly enquire about the status of any outstanding invoices as this gives you a rough idea of how to allocate as provision for bad debt

Factoring takes away all the hassle

Allocating time to chase customers for payment could be a very time-consuming task, especially for businesses with low staffing levels. This explains why many businesses seek out invoice factoring as it allows them to hand over the often frustrating job of chasing customers for payment.

Factoring isn’t just about debt collection; it also involves an agreed advance of a substantial proportion of the debt owed to you, usually within 24 hours. In addition, factoring overcomes all the limitations associated with late payments because it’s linked to sales ledger activity. As your business grows, you could have access to more and more funding.

By entering into a factoring agreement, you pass responsibility for debt chasing to a team of experts who have years of experience. Not only are you relieved of a task that can suck up hours of precious time, your customers may pay up more quickly.

Factoring could also be administered as a non-recourse arrangement, including bad debt protection which serves as an insurance against customer defaults – you are certain your customers are going to settle their bills. Invoice factoring improves your cashflow, which is one of the most pressing issues faced by UK firms today.


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