If you own a business, you understand that getting paid is essential to survive. This is especially true for small businesses that rely on prompt payments to maintain adequate cash flow. If you haven’t already deal with a late-paying customer, chances are you will at some point in the future. Better understanding your customer and the reasons behind their late payments can help your business develop effective payment solutions and prevent late payments in the first place. In this first of three articles, we will highlight the reasons why your invoice isn’t getting paid.
Why Do Customers Pay Their Invoices Late?
There are a number of different reasons why a customer might pay an invoice late. To begin, it’s helpful to understand that there are significant differences between a B2B customer and a B2C customer. These areas of difference are often the same drivers of late payments. For example, reasons for a late payment from a B2B customer tend to be process-related, whereas B2C customer reasons tend to be personal matters.
B2B Reasons for Late Payments
Rigid Payables System
Most common with large corporations, these businesses may operate on a payment schedule that doesn’t line up with your own. For example, while your business might expect payment within a month, it’s possible that the corporation doesn’t send payments until the 60th day.
Multiple Approvals Required
While your business may have a simple structure with a streamlined approval process, it’s possible that your customer has a more complex structure. Sometimes a business requires multiple people or departments signing off before payment is sent out.
Different Data Requirements
Some companies have certain invoice data requirements that must be satisfied. These requirements may consist of a W-9 form, purchase order number (PO number), and more.
In-House Payable Terms
In some cases, it may not matter to a customer what terms you provide in your contract. They plan to pay on their own terms, a certain amount of days after receipt, regardless.
B2C Reasons for Late Payments
It’s possible that your customer is having business issues of their own that are holding up the payment. They may have every intention of paying your invoice but are struggling to do so because of cash flow issues.
Invoice Accuracy Questions
Ensuring that you send an accurate and timely invoice will help you get paid sooner. Inaccuracies can lead to questions and disputes, which will draw out the payment process.
While ensuring quick receipt of payment might be a top priority to your business, making that payment may be low on the priority list of your customer.
Questions Regarding Work Performed
From time to time, a customer may find your work unsatisfactory and withhold payment as a result. In this scenario, it is best to try and work out a solution with the customer.
Misplaced or Never Received Invoice
In some cases, a customer may have misplaced your invoice or never received it in the first place. Whether a one-time slip or recurring problem, mishandling and mistakes can set you back.
No beating around the bush here. Sometimes you simply run into a deadbeat customer that never had any intention of paying. This customer may be difficult to identify early on.
Apart from impacting your company’s current bottom line, late payments hurt your efficiency and ability to grow in the future. Tracking down payments from customers is a hassle that eats away at your time, attention, and resources, all of which would be better served focusing on bigger matters. In the next article of this series, we will cover late payment solutions for your B2C customers.
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