Regardless of whether the late payment of a commercial debt has been brought about by an intentional effort to avoid payment or as a result of more benign reasons, there is still a cost associated with it.
Any solution that is applied after the fact is, almost by definition, going to incur more cost to the creditor in the form of debt recovery expenses and opportunity costs related to the time diverted to the debt recovery effort.
Aside from the outstanding debt itself, it is estimated that late payment costs UK small business a total of £10.8bn a year in recovery costs (compared to £8.2bn in 2014), an average of £11,500 pa per company or £955 pcm per company. Other sources put this figure even higher at £15,000 pa,… some say marginally lower.
24% say that late payments are forcing them to rely on bank loans (that incur interest charges) to bridge the gap and 26% say late payments are forcing them to pay their suppliers late as a knock on effect. That final statistic is telling because it points to the possibility that while much of the problem of late payment might stem from larger organisations, the trickle down effect means that it is endemic across the whole business community.
Additionally, 10% of businesses say they have to turn away new business as a result of late payment, 5% have to make redundancies and 5% of bad debt is written off altogether (Source: Hilton Baird). These are all barriers to growth which amounts to an additional opportunity cost.
Prevention is better than cure
These are needless costs and arguably money spent on debt recovery is wasted. By taking steps to avoid late payment in advance of submitting an invoice businesses can cut back on these costs and redirect the money to more profitable use.
There can be few better reasons for taking action ahead of time than that of not wasting money. Crowdsourcing anonymous contextualised data on late payment so that it can be used by businesses at the beginning of new relationships can benefit both parties.
In cases where late payment is not down to intentional efforts to avoid settling an invoice the supplier can find out more about the customer’s internal processes relating to payment of invoices and in turn the customer can explain these processes which could help cut down on admin when settling invoices.