The Hidden Costs of Delayed Invoice Payments & How to Avoid Them

When you’re busy with the day-to-day tasks of running a business, addressing delayed invoice payments from clients can seem like a low priority. It might feel easy to write off missed payments as “only a few days late” when you have more urgent fires to put out. In truth, a few days can cost you quite a lot—often much more than you’d think. 

While cash flow delays are a common issue for small and large businesses alike, solutions exist to help ensure delayed invoice payments don’t slow operations and chip away at profit margins through hidden costs. Read on to learn more.

The Impact of Delayed Payments on Business Operations

When your business experiences persistent cash flow delays due to unpaid invoices, operations can be affected in several critical ways, including:

• Delays in payroll processing
• Disruptions to vendor payment timelines
• Interruptions in the supply chain
• Limited ability to invest in growing your business
• Loss in revenue due to perceptions of disorganization

Delayed invoice payments not only disrupt operations but can also sow discontent among both your staff and customer base. When multiple clients are even “just a few days late” with their payments, a domino of consequences can occur that can lead to long-term damage to your organization’s reputation. Payroll and vendor payment delays might be a minor blip, but the unease and sense of chaos they can bring with them may prove a lot harder to overcome.  

4 Hidden Costs You Might Be Overlooking

The hidden costs of delayed invoice payments may masquerade as mere inconveniences but could actually spell financial trouble for your business. Over time, they can add up to a significant loss. 

1. Administrative Time 

When staff have to waste precious hours chasing after clients to pay overdue invoices, they lose time that could have been better spent working on other projects. While an individual email or follow-up call might not seem like much, collectively, they can add up to many wasted hours.

2. Missed Opportunities

Uncertainties in cash flow can make budgeting a challenge, leading businesses to hold off on making investment decisions that might help their company grow in the long term. This may mean waiting to hire new staff, upgrade software, or take on new work, which could result in lost business deals or potential revenue streams. 

3. Extra Fees

When invoice payments get delayed, you may need to take on short-term loans to cover the gaps. This often involves fees or high interest rates, which can add up over time.

4. Strained Relationships

Delayed invoice payments can force your accounting staff into the uncomfortable position of a collections agent, where they must repeatedly remind clients about policies and due dates. This can hinder staff morale and may lead to strained relationships with clients and even vendors. Customers won’t appreciate the continuous reminders, and vendors may be forced to delay their own cash flow while they wait for yours to catch up.  

Reviewing Your Invoice Payment Terms

Fortunately, there are ways to safeguard your business from these recurring disruptions. But first, it’s critical to understand your invoice payment terms—and make sure you and your clients are on the same page.

Payment terms are the agreements set between your business and its customers about when and how the customers will pay as well as any incentives that might be in place to pay early and any fines they might incur should they pay late. This should all be clearly detailed in the invoice. 

Common payment terms include: 

• Net 30: Payment is due within 30 days after the invoice is received (similarly, Net 15, Net 45, or Net 60).
• 2/10 Net 30: Payment is due within 30 days after the invoice is received, but if the invoice is paid within 10 days, a 2% discount will be applied.
• Cash on Delivery: Payment is due upon delivery of the goods or services.

Review your payment terms for any opportunities to improve clarity or make adjustments that work better for your business.

How to Prevent Delayed Payments

Next, you’ll want to conduct a thorough review of your overdue accounts to hone in on where the current cash flow issues are and how you might prevent them from happening in the future.

Here’s a step-by-step guide on how to do this.

Step 1: Analyze Overdue Accounts

Look at all your accounts with overdue payments and rank them by both age and amount. Note any that might be 90 days or more overdue. You should prioritize these accounts first, as typically, if you haven’t received the payment in three months, you run a higher risk of never receiving it at all. 

Step 2: Notify the Account

Invoices often go unpaid due to oversight or administrative error. Therefore, it’s important to keep in mind that the client may have simply forgotten, and a simple, professionally worded reminder email may be all they need. 

Step 3: Automate Reminders

Have your finance team create a reminder schedule and make sure they stick to it. Consistency is key, so whether you decide to send weekly reminders or follow up with the account every few days, the process should be uniform for all clients and automated whenever possible.

Step 4: Call the Client When Necessary

If your emails have gone unopened or you haven’t received a response, you may want to follow up with a phone call. The accounting team can do this, or you can assign a sales rep to the task, especially if the sales team already has a close working relationship with that particular customer. Make sure whoever handles the call follows up with an email so that the call is documented in writing. 

If the client remains unreachable through both email and phone calls, you may want to mail out a physical letter along with a detailed invoice.

How Invoice Factoring Protects Cash Flow

For a proactive solution that ensures stable cash flow even amid payment delays, consider invoice factoring. Invoice factoring involves selling unpaid invoices to a trusted third party, such as Riviera Finance, which will then collect on your behalf for a fee. You’re given immediate cash upfront and the remainder of the balance once the full invoice has been paid, minus the fee.

With invoice factoring, you get quick access to funds so you can keep your business running smoothly without the need to take out a loan or line of credit. Plus, you don’t have to waste time or risk relationships chasing after clients yourself. An invoice factoring company can help encourage slow-paying clients to follow through on their commitments while providing a buffer against any potential cash flow delays.  

Unlock Reliable Cash Flow Today

Stop letting late payments hold your business back. See how factoring with Riviera Finance can unlock steady cash flow today.