Making late payments can hurt your business

Small businesses that don't pay their bills on time can see a negative hit to their bottom line, along with encountering several other adverse effects that can hurt their business.

According to the Dun and Bradstreet Quarterly U.S. Industry Delinquency and Failures Report for Q2 2019, the number of companies that are not paying their bills on time has taken a turn for the worse.

The good news for many small and medium-sized businesses is that accounts receivable finance can help eliminate the uncertainty of when you will be paid allowing you to get the funds you need to cover your expenses before your payments are delinquent.

Since your business's credit score helps other companies assess their financial risk associated with working with you, it can be essential for your business to have a good credit score. One of the critical factors that credit bureaus use in determining your business credit score is when you have paid creditors in the past.

Often for each late payment that your business makes, that is reported to the credit bureaus, your score will decrease.

Hurt your relationships

In business, everything trickles down, and that includes the effects of late payments. Your suppliers can incur additional expenses and encounter hardships if they don't have the funds from your payment to cover their expenses. Simply consider how it impacts you and if you would want to continue working with companies who don't pay for your goods and services on time?

Cost you more money

By paying your bills late, you will lose out on any possible early payment discounts that could be offered by your suppliers and other creditors, and you could incur late payment penalties that could take effect the day after you miss the payment costing your business more money.

One way to help a business avoid deciding to make late payments to help preserve cash flow is to ensure they have the working capital needed to cover their expenses. Accounts receivable finance provides businesses with immediate funds for their unpaid accounts receivable, allowing them to do just that.

What is accounts receivable finance? It is financing that is based on the quality of your accounts receivable. As many banks require more tangible assets to reach the criteria for a traditional bank lending facility, accounts receivable financing is an alternative that grows as your sales grow and the decision to fund the business is not based on the balance sheet of a company or the profitability alone. There are usually no covenants to abide by, giving you the benefit of continuous funding. Accounts receivable finance is a great option for companies that have a week credit history, inconsistent cash flow or a start up business with no history at all. A finance company will qualify your customer's credit worth, usually before you consider doing the sale, assisting you with credit risk decisions, as well as assist in collecting the receivables, allowing you the benefit of running your business, whilst they partner as your Receivables back office. This gives further savings on staffing in-house.

Being proactive instead of reactive in regards to your business finances can make a significant impact and be the difference between having the funds to pay for bills on time or not. Now that you are armed with the information regarding the ways late payments can harm your business, this is the time to act.

• Sue Duckett is executive vice president of Franklin Capital Network