The Problem with Late Payments

Naturally, companies put off paying bills as long as they can while they expect to receive payment ASAP for services rendered or products delivered. That's the way the business machine works with most businesses require payment within 30 days. Holding off payment until the last minute allows your company to continue collecting interest on the money it has in the bank.

However, it's dangerous to play the late payment game especially when going past 30 days and doing that too often. This can lead to:

• Losing products and services because vendors know the company pays late.
• Sacrificing trust and credibility with vendors.
• Wasting employee time as they deal with vendor payment requests.
• Spending more because of late payment fees.

Here's another way to look at it. How would employees respond if you pay their salaries late? How would you respond when your clients pay 60 or 90 days late? At least, with vendors you don't have a set schedule like you do with payday. Still, they need you to pay their invoices within the agreed amount of time. Just like you expect your customers to pay within 30 days.

Sometimes the cash flow cycle doesn't work out that you find yourself short on cash. Rather than risking a domino effect that comes about from being short on cash, you can work around it with a line of credit or accounts receivable financing.

A line of credit or invoice financing avoids putting the company's reputation at risk and saves time because you and your staff won't need to work on getting customers to pay up or accounting to pay out. Having the funding allows you and your staff to spend more time growing the business and focusing on what you do best. This creates a positive domino effect that boosts morale, keeps everyone happy, cuts turnover and improves vendor relationships.

With social networking and the Internet, it doesn't take long for bad news to spread. If competitors and customers find out that a company pays late, they will take advantage of the situation. Relationships and reputation are reasons enough to make sure your cash flow is under control. And financing ensures cash flow stays balanced, which positively affects everything down the line.

You can have great relationships with vendors and customers, but nothing will make up for constant late payments. Occasional late payments may be OK as things happen. Be proactive when this happens and have an explanation ready. Do it too often and vendors will see them as excuses.

Remember cash flow doesn't discriminate. Plenty of companies have lots of customers and stay busy, yet they file chapter 11 because more cash flowed out more than came in.

What tips do you have for paying on time?