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How Late Payments Undermine Your Cash Flow

Why the biggest threat to business success is an unpaid invoice and late payments

In a perfect business world, payments would arrive on time, keeping the cash flow in a happy, healthy balance. But for small and medium-sized companies, late invoices and unpaid invoices are a harsh reality. They happen all the time and trigger a massive and often crippling ripple effect. Here’s a look at five ways SMBs end up paying the price on their missing cash. Plus, our tips for outsmarting them next time.

 

  1. Letting Down And Laying Off Staff

One of the first and worst areas to suffer is people. Delinquent payment hinders a company’s ability to maintain day-to-day operations, including the staff that makes it happen. It affects everyone. Business owners sacrifice their salaries, defer employee pay, and, worst-case scenario, let go of staffers. Now, imagine you and your department arriving on payday only to get an IOU in your inbox. Can you envision the anger rising? Nothing—repeat nothing—erodes company morale faster than withholding wages. Employees get thrown into a scramble, trust levels sink, panic ensues, and people jump ship. Even if you can somehow dodge a round of layoffs this time, the potential for team growth quickly becomes obsolete without enough funds to back it up. 

 

  1. Missing Out On Growth

Late invoices can quickly derail business plans. But without an ETA on outstanding payments, it’s impossible to make any. One major cost? Lost opportunity. Without financial control and accurate forecasting, SMBs won’t have the confidence or flexibility to jump at new contracts that knock on the door. The same goes for business investments. Putting money towards equipment, tech, or marketing efforts feels risky if you don’t know who’s paying and when. Our advice: Set strict payment terms, charge late fee penalties, and send invoices asap.

 

  1. Wasting (Not Working) Your Time

You know how it goes: You presume good faith. Send an email reminder. Keep an eagle eye on your PO box for a check. Follow up with a call, text, DM—or several. Just as you consider orchestrating a casual run-in with your client (at their office, obviously), it dawns on you that you’ve lost valuable money-making hours. Not to mention energy. Fed up? Start collecting and reconciling your cash faster with automated online payments. It’s the closest thing to getting time back and frees you up to focus on more profitable tasks, like, you know, actual work. 

 

  1. Causing Business Relationship Breakups

Down the line, late invoice payments can trigger a domino effect with clients. If you’re short on cash, you’re likely not going to afford the raw ingredients needed for client orders. Failing to fulfill on time is the equivalent of standing up a date. They trust you. You’re a no-show. Major dealbreaker. This can ultimately force clients to cut ties (to be fair, they also have customers to serve) and taint your reputation if word gets around. That new supplier who was about to get in touch? They decide to hightail it to a more reliable competitor, leaving you with less sales, less clients, and less revenue streams. 

 

  1. Maxing Out Mental And Financial Health

It’s no secret that running a business is mentally and emotionally taxing. But having serious money troubles on the mind can cause next-level turbulence: think insomnia, anxiety, depression, and high blood pressure for starters. Sometimes, dipping into private accounts seems like the only way to avoid a cash shortfall. Beware: Co-mingling private and business funds can have disastrous effects—like credit card debt, lost retirement, and bankruptcy—in the long run. So take our word for it, and scrap that idea, stat.

 

By Natalia Garduño

February 19, 2020

Share this article

Blog

How Late Payments Undermine Your Cash Flow

Why the biggest threat to business success is an unpaid invoice and late payments

In a perfect business world, payments would arrive on time, keeping the cash flow in a happy, healthy balance. But for small and medium-sized companies, late invoices and unpaid invoices are a harsh reality. They happen all the time and trigger a massive and often crippling ripple effect. Here’s a look at five ways SMBs end up paying the price on their missing cash. Plus, our tips for outsmarting them next time.

 

  1. Letting Down And Laying Off Staff

One of the first and worst areas to suffer is people. Delinquent payment hinders a company’s ability to maintain day-to-day operations, including the staff that makes it happen. It affects everyone. Business owners sacrifice their salaries, defer employee pay, and, worst-case scenario, let go of staffers. Now, imagine you and your department arriving on payday only to get an IOU in your inbox. Can you envision the anger rising? Nothing—repeat nothing—erodes company morale faster than withholding wages. Employees get thrown into a scramble, trust levels sink, panic ensues, and people jump ship. Even if you can somehow dodge a round of layoffs this time, the potential for team growth quickly becomes obsolete without enough funds to back it up. 

 

  1. Missing Out On Growth

Late invoices can quickly derail business plans. But without an ETA on outstanding payments, it’s impossible to make any. One major cost? Lost opportunity. Without financial control and accurate forecasting, SMBs won’t have the confidence or flexibility to jump at new contracts that knock on the door. The same goes for business investments. Putting money towards equipment, tech, or marketing efforts feels risky if you don’t know who’s paying and when. Our advice: Set strict payment terms, charge late fee penalties, and send invoices asap.

 

  1. Wasting (Not Working) Your Time

You know how it goes: You presume good faith. Send an email reminder. Keep an eagle eye on your PO box for a check. Follow up with a call, text, DM—or several. Just as you consider orchestrating a casual run-in with your client (at their office, obviously), it dawns on you that you’ve lost valuable money-making hours. Not to mention energy. Fed up? Start collecting and reconciling your cash faster with automated online payments. It’s the closest thing to getting time back and frees you up to focus on more profitable tasks, like, you know, actual work. 

 

  1. Causing Business Relationship Breakups

Down the line, late invoice payments can trigger a domino effect with clients. If you’re short on cash, you’re likely not going to afford the raw ingredients needed for client orders. Failing to fulfill on time is the equivalent of standing up a date. They trust you. You’re a no-show. Major dealbreaker. This can ultimately force clients to cut ties (to be fair, they also have customers to serve) and taint your reputation if word gets around. That new supplier who was about to get in touch? They decide to hightail it to a more reliable competitor, leaving you with less sales, less clients, and less revenue streams. 

 

  1. Maxing Out Mental And Financial Health

It’s no secret that running a business is mentally and emotionally taxing. But having serious money troubles on the mind can cause next-level turbulence: think insomnia, anxiety, depression, and high blood pressure for starters. Sometimes, dipping into private accounts seems like the only way to avoid a cash shortfall. Beware: Co-mingling private and business funds can have disastrous effects—like credit card debt, lost retirement, and bankruptcy—in the long run. So take our word for it, and scrap that idea, stat.

 

By Natalia Garduño

February 19, 2020

Share this article