Business-to-business companies typically give clients 30 days to pay for their products or services. These B2B companies also need to pay their vendors within the same timeframe. And it’s standard business practice to wait until the end of the 30 days before making a payment.
It’s like having an interest-free loan for 30 days as you keep cash longer in your bank account. However, late payments can cause the company’s cash flow to snowball out of control jeopardizing other areas of the business and its relationships with vendors. (There’s a difference between being nice by paying quickly and having the needed cash flow to stay in business.)
While sometimes things happen that force you to pay your bills late, it’s critical to avoid allowing this to become a habit.
Making late payments on a regular basis can affect:
- Lose vendor credibility and trust.
- Squander employee time as they’ll be dealing with vendor requests for payment instead of spending time on revenue producing activities.
- Pay avoidable late payment fees.
- Stop receiving products and services because vendors can’t count on company to pay on time.
Look at it this way. What would happen if you don’t pay employees on schedule? How does it affect you when customers pay you late for your products or services?
Making payments at the right time
As vendors typically require payment within 30 days, this affords you the flexibility to make it work with your cash flow cycle. This helps maintain cash flow stability throughout the month. It’s OK to wait until the end of the 30 days to pay them. You’re still paying on time.
For example, one company discovered its ratio between receivables and payables looked skewed. It would pay vendors quickly, but payment on outgoing invoices trickled in. That’s why it’s important to pay your vendors as late as possible (end of 30 days), but not hold off payment to the point of aggravating them. It won’t affect your credit score. As for your relationship with your vendor, do you think they’ll come to your rescue when your business starts limping?
It’s standard business practice to delay payments. Being nice doesn’t keep money in the bank. Should that not solve the cash flow problem quickly, requesting flexible financing or a line of credit can relieve your problems when you’re low on cash and struggling to pay expenses on time. This working capital will get your payables and receivables on a balanced schedule.
After you receive funding, you won’t be worried about collecting on your invoices and making payments. When you pay on time, your staff can concentrate on what it does best rather than chasing down payments. This also affects customer service as employees can spend more time with customers and products or services. As a result, it sets off a positive domino effect that increases morale, limits turnover and enriches vendor relationships.
Maintaining great customer service and vendor relationships
You know that bad news spreads faster than the speed of thought thanks to the Internet and social networks. It takes little effort for customers and competitors to discover a company doesn’t pay on time or fails to provide high quality customer service. Yes, people make mistakes, but if they owe up to them — people will forgive. That’s why it’s important to have a balanced cash flow.
Late payments and poorly handled customer service can affect a strong relationship with clients and vendors. It’s a big step backwards when you have to earn back their trust. No doubt, things happen that to prevent you from paying your bills on time. Take proactive steps to prevent late payments from reoccurring. One way to do this is with line of credit and flexible financing.
It’s understandable that small business owners get wrapped up in the day-to-day operations of their business that they can simply forget to pay. You have options to help you stay focused on your income-producing activities. Working with a financial services company can save you a lot of time and headaches.
Successful companies with a healthy number of clients can still go out of business because of lopsided cash flow. Do what you can to stay on top of it and hold off paying your vendors until the end of the month.
What other ways can you ensure you pay bills on time while balancing cash flow?