How Payment Delay Affects Your Business

As most business owners and CFOs know, cash flow is the lifeblood of a business. Without cash flow, a business will cease to exist. It is therefore important for all businesses, large and small, to manage their cash-flow effectively. One common threat to cash flow that many credit controllers will recognize is late payments, which can do significant harm to a business. Here, we look at why cash flow is important and how cutting down on late payments can help improve things.

In business, capital is very essential for operation. In the exchange of goods and services, funds move from one hand to another for the investment. In any business, operation capital is seen as a vital element to make business complete. Money lending finds itself in business as there is a culture of stocking in the business transaction or exchange. Businesses encounter big problems when they have a bad credit record.

Why Cash Flow Is Important

Research conducted by American Express reveals that one-third of small firms that have missed a payment deadline has subsequently had suppliers withhold goods or services. Additionally, 28% have had their relationship with suppliers tested because of cash flow issues, while 35% have had to cough up additional late payment fees for missing deadlines. This shows the implications of not being able to control the flow of money within a business and the dangers of business failure due to late payments. Additionally, having certainty in your cash flow can mean greater overall certainty in your business, providing, for example, the confidence to make purchases quickly without having to wait.

Consequences of Poor Business Credit

1) Suppliers credit; the business run by the help of suppliers supplying goods or services on credit whereby all these are not paid in cash. If the businesses do not make good returns, it may not be able to cater for the costs of the supplies. This may lead to business bad credit history as the suppliers may not be paid on time or as agreed.

2) In finance history or record, capital procurement may be realized through difficulties in relation to bad credit. In the cases where a business does not obtain good financial credit record, it may need to borrow loans from lenders and it may not be accepted. Due to poor financial record or credit, it may push the business towards private money lenders as the only option hence they end up into high loan interest rates. And this will result in the reduction of the revenue made by the business.

3) In the business, negotiation of partnership becomes a challenge as the other partners may not accept to take a business with a bad financial record as this could result in the loss of their business capital investment. If the business under liability, its market value is automatically affected and this becomes a consequence for the business.

4) In regard to bad credit record, one can find it costly to pay insurance premiums when costing the policy for the business. The business with high outstanding debt levels seems to attract high premium rates as it faces high risks of nonpayment.

5) A bad credit score in business may result in incredible constraint to personal life at individual levels and family members. In the worst cases, bad credit can ruin a marriage relationship in both short and long term millstone.

A Customer Settling Her Bills

A late payment could affect the expenses companies usually have such as staff salaries, supplies, rent and expenses for operations. Cash flow is very important, especially when coming up to hard months where cash is tight or when a crisis happens. Having late payments could leave you dipping into your reserves instead of using them to invest in business growth. Therefore, bad credit in running business cannot develop the business into profitability. The progress of the business, rank in their operation and the overall growth of the business are greatly affected.