Why a successful business doesn’t just look ahead - they also address what’s still behind them
Late payments are toxic to the growth, profitability and sustainability of your business. What can your business do about this debilitating problem?
Ask yourself a question: Is your business moving forwards or backwards?
Many would enthusiastically respond, “forwards!”, perhaps with a focus on growing a greater customer base, acquiring more accounts, diversifying what they offer, etc. Certainly, these are fine goals that promote growth and success. However, you need to ask yourself another question that can be just as important: Have you given attention to what’s still behind you? Late payments are a problem for both the profitability and success of your business.
How serious of a problem are late payments to the success of your business?
Some view late payments as an annoyance that’s just part of doing business. However, to give proper weight to the matter, ask yourself one more question: Is bankruptcy just an annoyance? Because that is how this problem is currently affecting the EU. For example, in the UK, it is estimated that more than a fifth of small and medium-sized enterprises facing late payments are at risk of bankruptcy. It’s an even more critical of a problem in France, where a quarter of bankruptcies are related to bill-settlement issues. Do you still view it as just an annoyance?
To give a more concrete idea of how late payments impact companies, let’s examine a few payment figures from the credit insurance company Atradius. They noted that in Portugal, for example, the average deadline for payment is among the largest in the EU: 26 days. However, it took, on average, another six days to finally receive payment. In Ireland, 18 days is the deadline for payment, yet they are finally received five days late on average. Italy averages 18 days for payment deadlines, but after five more days the payment finally comes through. Moreover, finally in the UK, 14 days is the deadline to receive payment, but they can expect to wait at least a full week for the payment to be received.
Just imagine how this common occurrence can affect your company: you go through all of the struggle and expense of doing business, only to have to guess when you will receive payment. Meanwhile, expenses continue to pile up, sometimes with very little cash coming in to cover them. That’s not just an annoyance- that’s a serious problem, and one you need to understand to prevent it from crippling your business.
What causes late payments?
While there’s no end to the reasons that a payment might be late, the most common reasons identified by customers are as follows:
- Goods or services received do not correspond to what was agreed
- Unplanned financial difficulties
- Complicated payment procedures
- Disputes over the quality of goods or services.
A savvy business owner is wise to analyse these causes and see what they can do to minimise or even eliminate them on their side, even though the customer can be at least partially to blame. Take, for example, the first bullet point regarding goods or services differing from what was agreed- have you made sure your terms and conditions are tailored to your specific business? That’s what is recommended by Factris CEO Brian Reaves to give the customer a crystal-clear picture of what to expect to avoid any murky-business dealings. Another tip is to refine your payment procedures: for example, is there a better payment system than what you’re currently using, perhaps with features that might end up slaying the late-payment dragon? Embracing tech solutions can not only save a great deal of stress; it can also make your customers better informed and happier, thus eliminating potential issues resulting in late payments.
Sadly though, sometimes late payments are unavoidable, befalling even the most carefully-guided business transactions. What should you do if late payments threaten to grind your business to a halt?
What solutions are available for late payments?
Such a sobering problem needs solving- and promptly- for your business not to get mired in debt resulting from payments still not received. With the delays, complications and hindrances imposed on small businesses by traditional banking, it’s not a surprise that alternative financing is on the rise. This can be observed among many Western European companies as they respond to the benefits of financing of issued accounts, also known as factoring. EU Factoring and Commercial Finance Federation (EUF) reported that EU countries' factoring turnover in 2018 exceeded 1.7 trillion euros and, compared to 2017, increased by 8%. Moreover, this isn’t new, either, according to the EUF. In fact, this is the tenth year of growth, proving that factoring is already playing an increasingly important role in the financing of business and development.
“Have some entrepreneurs already discovered this? Yes. However, they are not exploiting it to their full potential yet.” says Factris CEO Brian Reaves. Indeed, innovative solutions like factoring can be the lifeline needed for businesses in need of funds that late payments are holding hostage, but these sorts of solutions aren’t just implemented automatically- it takes a shrewd business owner to take advantage of them before the pain of late payments is felt.
We can’t help but look to the future- it’s in our nature as humans, and is crucial for running a successful business. But a company can’t survive future challenges while still carrying the burdens of the past. Fortunately, some causes of late payments can be minimised or even avoided, and solutions to late or unpaid payments like factoring are here. However, it’s up to businesses to pay attention to what slows them down from the past before they can fully press on towards the future.
Chief Marketing Officer
+370 676 85060
Factris mission is to provide low-cost working capital to SMEs throughout the European Union. While everyone is cutting back or charging extra to speak with a real person, Factris is committed to having a local presence and providing personal services to all its customers.