Cash flow is king!

Cash flow is a significant aspect for any business organization, from a startup company aiming to create a lasting impact in the market to a business venture looking to boost its business activities. Any effect on cash flow slows down operational activities, a situation that can potentially harm an organization.

According to the British billionaire Richard Branson:

"Never take your eyes off the cash flow because it's the lifeblood of business." — Sir Richard Branson

According to ordermentum.com, inadequate cash flow is responsible for the failure of almost 90% of small and medium-sized enterprises. It is apparent that without cash inflow, a business or an enterprise would not be able to handle its cash outflows, thereby laying the foundation for a possible collapse. A survey conducted in 2020 by the Federal Reserve Banks of a few states belonging to the United States of America implicates that 17% of small businesses would have to close if they experienced a two-month revenue loss.

Over 60% of small and medium-sized businesses struggle with cash flow issues due to unpaid invoices.

Late payments are a hindrance to cash inflow. Almost 60% of the businesses suffer from the issue of chasing late invoices. Many small companies hesitate to pursue payments due to the fear of sabotaging the relationship with their client. But, if the company does not focus on improving cash inflow, it will exhaust its cash reserves and assets, which will force the company into defaulting or liquidation. Therefore, the first thing to improve cash inflow is focusing on outstanding or unpaid invoices.

Why are your invoices not paid on time?

There could be numerous reasons why your invoices are not getting paid on time. Here, we analyze the five most common that top the list.

1. Your Terms and Conditions are Loosely Defined

Defining clear and consistent terms and conditions beforehand is one of the principal elements of any business. Documentation, notably financial and contractual, is an integral part of an organization's business activities. If your client is delaying payment, a contributing factor to this conduct could be a vaguely defined contract and ambiguous terms and conditions. Examples of contractual weaknesses include:

• Not establishing proper payment deadlines.
• Not stating any penalty or legal actions you might pursue in case of delayed payments.
• Not stating the consequences of late payments on the quality or provision of product or service.
• Leaving out any minor details can facilitate the client in getting away with late payment.

2. Your Payment Methods are Inconvenient

When it comes to payment options, a variety of choices are available nowadays. These choices include online payment, electronic bank transfer, mobile payments, check, or cash payments, among many others. Today, most businesses are inclined towards online transaction methods because of their ease and convenience. Your payment options may be up to date with the modern era of information and technology, while on the contrary, your client may be more comfortable with traditional payment options or vice versa. Nevertheless, you should ensure that your payment options are flexible, enabling you to cater to all kinds of clients.

3. Your Client is not satisfied with your Delivery

Another factor for late payment could be a client's dissatisfaction with your product quality. The quality of your product or service could be sub-par, or it could be that you failed to follow the deadline. A dissatisfied client is a risk to a business because they can file lawsuits when they find your delivery unsatisfactory. Instead of receiving a payment, you might have to pay the penalty for your inadequate delivery. Therefore, it is necessary to establish terms and conditions regarding what you will deliver and follow them precisely.

4. Your Client is facing problems with Cashflow

As stated earlier in this article, cash flow is an essential element of any business, whether a small business or a large enterprise. If your client is not attending to your invoice, even though you have fulfilled all your deliverables, they could be using delaying tactics to conceal their limited budget caused by a cash flow problem. There could also be instances where your customer might have gone into liquidation.

This point also depicts how vital proper documentation is. If you neglect documentation, you will not be able to claim your payment with legal help when your customer goes into liquidation or is holding off payment due to cash flow issues.

5. You did not properly follow up with the Client

Many companies do not pay attention to following up with the client. Providing a product or service is one thing, but following up with the client for payment is another. There are a number of reasons why follow-ups are essential. A few of them are listed below:

• Your client is delaying payment because it's a habit or a company policy. Following up with the client would nudge them to clear your invoices sooner than later.
• Your client forgot about the invoice because they were busy or occupied. Following up could remind them that they have unpaid invoices to process.
• Your client might have put your invoice on a low priority. Following up would prompt them to put it on a higher priority.
• There could be an error on your end. It could be possible that the client did not receive the invoice, or there could have been some mistakes on the invoice. Sometimes a recording mistake occurs, and it's also possible that the invoice was paid but not recorded correctly. Following up will help resolve such conflicts.
• Another reason for delayed payment could be the unavailability of their finance and accounting team. Following up with your client can help you identify this cause and establish feasible deadlines.

Therefore, following up with your client is just as important as providing a product or a service.

Conclusion

For any business, whether operating at a local or an international level, cash flow is an aspect that is of the essence. Cash flow determines where the company is standing in terms of finance. It is also an element that provides direction to an organization for its future endeavors. Therefore, it is exceedingly important to keep an eye on the cash flow. The first step to solving any problem involves identifying the causes. This article sheds light on the top 5 reasons your client could be delaying payment.