Why Late Payers Are Deadly Problem for Small Businesses

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Are you a small business owner with weak cash flow? If yes, then you probably have some late payers to deal with… Small businesses deal with a small number of customers. And every customer matters, not just in how they’re treated, but also in how they treat you. A customer who pays late restricts your cash flow. They contribute to a bad balance sheet, and a lower than expected credit score. You’ve got to tackle this problem. You need to make sure that customers don’t skip or delay payments without sufficient reasons.

And By Customers – We Mean Large Organizations.

It’s a worldwide trend – and one you’ll find in many countries. For example, late paying “large” organizations are a big problem in Australia. The problem has grown to a point where officials are looking for solutions. Even in the UK, “The Federation of Small Businesses” is tackling the same problem. There, recent actions have been taken to guide business owners through late payment problems. Also, a “Small Business Commissioner” was appointed to regulate the problem of late payments. The issue has also affected the US, to the point of crippling the basic everyday expenses of small businesses there.

Breaking Down the Problem.

Let’s start with the fact that small businesses rely heavily on large corporations for income. And to go after a large business (that’s paying you slowly) means losing them as a customer. In essence, you’re choosing between late payments, or no future payments. That’s a risk many businesses can’t take.As a small business (especially a supplier), you compete with many for the attention of the few. So there’s a disproportionate balance that’s driving the problem.

Can Small Businesses Afford Suing Bigger Companies?

Assuming you have the finances to face a large corporation, sure. But that’s unlikely… You’re also tarnishing your business’ reputation in the process. If you take a company to court for late payments, other companies will avoid business with you. So not only do you lose money in a drawn out lawsuit. But you also lose the trust of your market, which is a lot of risk to take.

Large Organizations – Abusing the Problem.

Large organizations that delay payments treat their small business partners as banks. In essence, they pay late, and will sometimes ask for discounts for on-time payments. And with the weak negotiating power of a small business, saying no means losing a customer. In essence, a large organization gains a set of free banks, while setting their own borrowing terms to them.

Late Payers – They Harm the Economy.

Late payers equal low cash flow for a business. And low cash flow means less investment money. Small businesses with low cash flow cannot expand their operations. They cannot invest in new equipment, or in training employees… That is – assuming they can hire employees in the first place. There’s also the problem of small businesses paying themselves. With low cash flow, a small business owner has to outsource their debts to their daily life. So now, small business owners “are forced” to late-pay their utility bills. They have to late-pay their credit (personal and business). And they have to drop their living standards in the process. So as you can see, later payers don’t just harm small businesses. They are toxic to any economy.

As a Small Business – What Are My Options?

You can start by applying some credit control. With credit control, you assert a certain limit on delayed payments in your contract with customers. You also assert a credit limit per client, big or small. Most large businesses enforce credit control when providing their own services. And they do so using specialized departments. n But as a small business owner, you probably can’t afford a large credit control department. You might be doing the job yourself, or with 1-2 employees. So you have to outsource that job. You need outsourced credit control. With outsourced credit control, you gain advice on setting up contracts for proper cash flow. And you gain expert services that optimize your credit control routines. Consider it as a form of debt collecting, without going through the hassle of it.

Where Can I Find Help With That?

To outsource your credit control, we recommend asking for recommendations. You can start by going online, and searching  Racing Credit Control This should give you an excellent candidate or two to try out! With proper credit control, you’ll straighten out your business and living expenses!

August 2022