Disturbingly, it seems that paying late is the new normal.
” Big companies are paying their bills late, later, and latest” says Dave Rosenbaum in an article he wrote several years ago.
He says it started back in 2007–2008. CFOs and finance departments felt they had to hold on to their cash in those economic hard times. The longer companies could hold on to their cash the more liquid they were, the safer they felt
Purchasers think when it comes to accounts payable outstanding, the longer the better.
While before 2008, many businesses were reluctant to drag out payments, as time went on more and more companies ( usually larger ones) began telling suppliers (usually the smaller ones ) that payment would now be extended from 30 days to 60, 90 days, and sometimes beyond.
There are other business owners who have just gotten used to paying late, bullying suppliers into accepting less than what is owed and periodically not paying at all.
To their surprise, it worked. They got very little pushback.
Small companies who worry about losing business, won’t challenge their big customers, and often accept payment terms that are longer than they should be.
What is worse is that they are even loathe to take action when those due dates have long come and gone and the account still remains unpaid. Rather than getting tough they keep accepting excuses and hoping they will get paid “soon”.
According to Rosenbaum …. an Experian/Moody’s Small Business Credit Index study showed severe delinquencies (invoices more than 90 days past due) climbed dramatically over the last 6 years….. . . . This is one area where large firms often take advantage of their market power to strong-arm small-business suppliers and customers.”
Accounts receivable delinquencies have gotten better recently, giving some suppliers and service providers a false sense of security. However, they still do themselves harm when they allow their customers to continually delay payment.
Often by the time third party collectors are contacted, the file is virtually uncollectable. Sometimes even limitation periods have expired.
If the customer is having cash flow problems, it makes sense to try and work with them, but not to the point where you wind up last in line behind other creditors.
If any of the following danger signs are present it’s time (with some exceptions) to turn your delinquent account over to someone who can retrieve your money for you.
- The account is 60 days past due with no firm commitment for a payment date;
- Your customer is not returning your calls or replying to your emails;
- The customer has defaulted on at least two payment date promises;
- The customer won’t even commit to a partial payment.
The credit you extend to your customers is a courtesy. You should make them understand that the payment timeline is factored into your price. If they insist on dragging out the payments beyond the deadline, their costs will increase and you will be forced to take action.