According to a recent survey by Talley Street, small businesses reported collecting 57% of their payments late in 2020. Of this 57%, 17% was collected over 30 days after the due date, with some payments as late as 90 days or more. While it’s easy to attribute this statistic to the effects of the COVID-19 pandemic on available cash flow, the reality is that late payments are an age-old problem that affects all organizations, with small businesses being particularly hard-hit. Late payments are one of the main causes of small business failure, which influences all stakeholders - including external customers.
Of course, when a crucial and reliable customer goes out of business, it can have a huge impact on cash flow. However, there are many other softer reasons why payments may be delayed rather than never arriving at all.
Some perfectly solvent businesses want to accrue cash in order to invest or speculate on the money market; others may strategically segment their supply chain and keep the most important suppliers happy while making the others wait.
In our experience as a Spend Management solution provider, we believe that most late payments are not planned, but rather the result of poorly managed invoicing and payment processes. In addition, there are still many archaic and un-user friendly accounts payable systems and inefficient paper-based purchasing processes that cause invoicing errors, disputes and ultimately debts.
How can businesses fix these issues?
When clients integrate their purchasing and invoicing processes, the payment cycle takes less time. The whole accounts payable workflow is automated, combining the process of ordering goods and services on the buyer side with raising invoices on the supplier side. Getting rid of manual processes and implementing best practices improves accounts payable efficiency and allows businesses to benefit from on-time payments, minimizing the stress of late payments on their supply base.
Should companies pay early?
Many companies have not yet discovered the benefits of early invoice payment. Paying on time is good, but what if your business could get a discount and save money by paying early? Dynamic discounting creates great negotiation opportunities, allowing the customer to benefit from discounts when they agree to pay a supplier’s invoice early. Typical discounts vary between 2% to 4%, which not only saves the customer money, but improves supplier cash flow of the supplier - a win-win for both sides.
Medius is dedicated to helping customers improve accounts payable efficiency and enhance supplier relationships, creating sustainable and favorable conditions for long-term trade that benefits both sides.