Who likes late payments? That’s the easiest question in the world: absolutely nobody. Late payments can disrupt business operations, cause cash flow problems, and sour otherwise well-working business relationships.
But it goes even further. Consistently late payments have implications that can have an even deeper significance for businesses. Find out what they are, how to deal with them, and what you can do to prevent late payments plus all their implications altogether.
According to a recent study by Intuit, 61% of small businesses worldwide experience cash flow issues. This means that they don’t have enough money to cover their own payments. Unfortunately, this is not their problem alone, but it affects all their business partners as well.
One late payment can cause a chain reaction: businesses that can’t be paid become late with their own payments, resulting in a long chain of unsent payments due. Here’s the result: on any given day, an average small business in the US has $53,999 in outstanding receivables.
Depending on the size of your business, an amount of missing cash like that can be a minor nuisance or a serious problem. To see which category your business falls in, ask yourself the following question: does it affect my cash flow? If the answer is yes, you have to solve the issue as soon as possible.
A shortage of cash flow can have dire effects on businesses. In fact, the reason behind 82% of small business failure is poor cash flow.
It’s easy to see how late payments have a bad effect on all businesses involved. So why do late payments occur at all?
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Interestingly, payments methods have a larger impact on late payments than you’d think. Why is that?
In an ideal world, payments processing should have no effect on the sending and receiving of funds. After all, isn’t that what they’re for? Each transfer, regardless of the payment methods used, should arrive in a timely manner.
Unfortunately, that is not the case. Far from it.
While the exact schedule always depends on the actual banks involved in a transaction, a cheque may take 3 to 5 business days to clear. Similarly, a credit or debit card payment can be in limbo for 2-3 business days while the receiving bank checks if there are sufficient funds in the sender’s account.
Luckily, the advancement of financial technology, or fintech, allows for faster payments methods. About a decade ago, new payments gateways emerged, like PayPal, Payline, or Stripe. By the way, a payments gateway “is the middleman between your online store and the payment processor that receives the payment from your customer.”
These payments gateways allow for faster transactions between online stores and customers. This is excellent news for business-to-consumer (B2C) transactions, as faster payments processing helps eliminate late payments. But what about business-to-business (B2B) transfers?
B2B payments software like Veem allow businesses to send and receive fast and secure domestic and global payments at lower costs. Faster transfers mean fewer late payments, since no transactions are delayed while waiting for payments processing.
Veem offers favorable foreign exchange rates and charges no wire fees, which in turn contributes to saving funds and, ultimately, better cash flow in your business. But Veem’s payment software has even further advantages for small businesses.
With Veem, you can track all your transactions in real time. This means you’ll always know where your money is and when it will arrive. Furthermore, Veem fully integrates with your accounting software, creating a seamless process from invoicing to sending and receiving payments online. Thanks to Veem’s integrations, your accounts payable and receivable auto-sync after each payment is sent or received.
All-in-all, using fintech B2B payments software will help eliminate late payments while saving your business both time and money.
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When a payment is long overdue, you can do more than just send the occasional reminder to your business partner.
Invoice discounting means that you borrow money against your outstanding invoices from a financing company. Once you get the original invoice paid, you can repay your third party lender. You can go for this option if you’re short on cash but don’t want to sever ties with the business partner owing you money.
Payment factoring, on the other hand, is a viable option only in case of irredeemable payments and business relationships. If your business partner is unreliable to the point of regularly not paying their invoices, you may consider payment factoring. In this case, a financing company like BlueVine buys your outstanding invoice and collects payment from your business partner themselves.
This means that you won’t have to deal with that payment ever again. But since this is considered an unfriendly move, don’t do it if you want to keep working with your business partner in the future.
Since any business may occasionally experience cash flow shortage and let their payments run past their due date, completely eliminating late payments is not always possible. However, you can take several steps to make sure it happens to you as scarcely as possible.
Create a strict payments policy and stick to it. Let your partners know at the start of your business relationship that you don’t tolerate payments deferred and what consequences they can expect should they ignore your policy.
Make sure you stick to your policy as well. Ensure that you have a healthy, well-balanced cash flow providing you with enough funds to cover your accounts payable at all times.
Finally, use the fastest payments methods available to ensure that no transactions are parked in the ether, waiting for payments processing. Shaving a couple of days off each payment can help you secure healthier cash flow and diminish late payments.
Late payments can be anything from mildly annoying to life-threatening for your business. Make sure you eliminate the causes of late payments as best as you can to avoid serious cash flow imbalances.
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