Dive Brief:
- Eighty-six percent of businesses struggle with getting on-time customer payments in up to 30% of their monthly invoiced sales, according to survey findings released Thursday by credit monitoring and risk management firm Creditsafe.
- It’s a problem that can seriously drain monthly cash flows, especially among small and medium-sized businesses, according to a report on the findings.
- “While it’s normal to see about 5% of your monthly invoiced sales coming in late, it’s another thing to see upwards of 30% of monthly invoiced sales being overdue on a regular basis,” the report said.
Dive Insight:
Late customer payments can disrupt business operations, cause cash flow issues and even put a company at risk of shutting down, according to Clover Network, a provider of point-of-sale systems for small and medium-sized businesses.
Eighty-one percent of businesses typically chase a customer between one and four times just to get a single overdue invoice paid, according to Creditsafe’s study.
The firm said it’s important to analyze a potential customer’s historical trade payments and late payment trends before signing a contract — a step that 61% of companies don’t always take.
“When it’s time to pursue a prospect, sales teams are laser-focused and do whatever it takes to close the deal,” the report said, adding that it’s up to finance teams to ensure due diligence and protect the organization from “high-risk” customers.
Besides scrutinizing potential customers for red flags, monitoring existing ones is also crucial, according to Creditsafe. “Just because you may have run a credit check on a customer before signing a contract with them doesn’t mean all is good and well for the duration of their customer lifecycle,” the report said. “Things can change quickly and drastically.”
Other best practices include setting up automated alerts for overdue invoices, charging late payment interest fees, and re-negotiating payment terms with delinquent customers, the report said.
Creditsafe polled over 200 U.S. finance and accounting professionals in January. The respondents represented small, medium and large companies across multiple industries, including retail and wholesale, manufacturing, construction and telecommunications.
