6 repercussions of not paying suppliers on time
The impact late payment has on suppliers might be well documented, but have you ever considered the impact not paying on time will have on your business?
Despite the economic recovery many businesses are still feeling the squeeze and, for this reason, it can be awfully tempting to miss an upcoming payment deadline to preserve cash flow. However, unfortunately, paying late is a big deal and there is a range of negative repercussions to consider when paying late – or not at all:
Damaging the supply chain
Providing a service or selling goods on terms can take its toll on a business, and if payment is late then they will be faced with some serious concerns of their own.
Communication is always key, so if your business is struggling to meet its payment deadlines talking to your customer in advance of the due date could help. They’ll appreciate being made aware you might be struggling to meet a payment deadline. And, with enough notice they will be able to plan ahead and may be willing to grant a payment extension, particularly if you’ve been a reliable payer in the past.
Having successfully worked on a number of business issues, including tax avoidance and businesses not paying the minimum wage, name and shame campaigns are growing in popularity. So it’s not surprising that many companies and organisations such as the Forum of Private Business are now publicly outing late payers. And with the rising use of social media, there are even more platforms for your business to face criticism on.
Difficult to use their services again
Should your missed payment result in financial hardship for your supplier, will they be as receptive to your next order? Our research has found that businesses are taking a firmer stance against late paying customers, with 59% of businesses suspending work and services and 45% suspending customer credit facilities. Is it worth the risk of losing their services for failing to pay?
Impact on credit rating
According to our survey, 35% of businesses are now using the Small Claims Court or registering County Court Judgments against customers. Aside from the financial implications, these are things that will go on your business’s credit report for all to see. And with 49% of businesses now credit checking new customers, your ability to buy things on credit will soon become much more difficult.
Harder to access funding
A negative impact on your credit rating from paying late will also make it harder for you to access funding in the future. When banks consider lending, your credit score and how big a risk they perceive your business to be are important. Improving your financial standing may enable you to negotiate a better rate. But to do this you need to make a conscious effort to pay bills and invoices on time to ensure your credit score is the best it can be.
If you need to improve your cash flow to make payments it’s always worth exploring the range of funding facilities on the market that specifically target increasing your business’s cash flow. Talking to a broker can help to identify areas of improvement and the most suitable facility that’s on the market.
Stress to employees
All of the repercussions mentioned above could have a negative impact on your staff. And with employees often a business’s biggest asset, it’s vital to make them feel happy in their work and not stressed.
When angry suppliers call your business looking for their payment it will often be your employees who field the call and have to deal with it. Where possible, communicate with your staff so they are aware of the situation and make sure you have provided adequate training to help them deal with complaints and criticism from suppliers.