In a previous analysis, it was found that 54 per cent of all invoices sent to customers were paid late.
Late paying customers can cause serious cash flow problems for small businesses. Whilst every business have customers, they also have suppliers.
Are small businesses guilty of paying other small businesses late? Are the people whinging also the source of the problem? Could it be that we are hypocrites?
Analysing over 500,000 account payable invoices confirmed that small business owners are both the perpetrator and the victim of late invoice payments:
+ 51 per cent of supplier invoices are paid late
+ 40 per cent of these late payments are settled within 7 days after due date – suggesting that people probably just forgot or was too busy
+ but 35 per cent of late payments are more than 20 days overdue!
When suppliers are paid more than 20 days late, they are really being forced to be your bank – providing interest free loans to cover their bill.
Of course, some companies, mainly large corporations (like energy and phone companies), charge interest for late payment. The data can’t tell us whether late fee penalty is a common practice. In the UK, the there are laws allowing small businesses to charge late payment fee – up to 8.5 per cent of the invoice value!
What are the consequences?
Small businesses are highly interconnected and interdependent. If the common practice is for small businesses to pay their suppliers late, then how can we expect our customers to pay us on time?
There should be a better system to manage the process of invoice payment. Reminders are a start. However, there should be penalties for late payment and rewards for early payment. In fact, the very act of not paying on time, or paying early, is the customer penalising or rewarding their suppliers with improved cash flow, and lower funding costs.
Are you a Good Egg or Bad Egg?
In the infographic below, the data highlights some disturbing behaviour. It looks at how often businesses paid their bills on time and found:
+ 15 per cent of businesses pay their bills late 25 per cent of the time
+ 1 in 2 businesses pay their bills late 50 per cent of the time
+ 1-in-10 businesses pay their bills late 75 per cent of the time
Have a look at your bills. How frequently do you pay your suppliers late? How do you compared?
————–
About the Author:
Jeremy Kwong-Law is the CEO of Vistr (www.vistr.co), a free Xero add-on that automatically forecast small business cash flow for the next 90 days. Instantly see if your business will have enough cash to pay the bills and grow.
