Struggling with late invoice payments + offered flexi-loan - have you ever done it?

[regrettinglifechoices]

I own a business which is doing really well at the moment. But every single month, I mean every month, I am struggling with late payments from clients despite my payment terms being in our contract.

Every month I am taking in less than I had previously calculated with some months awaiting tens of thousands in overdue payments.

This happens with both new clients and old, I send reminders and requests for payments and have also had to resort to letters before actions until payment has been made.

It’s a difficult one because some of these clients I have good relationships with and I don’t want to lose the business but ultimately it is difficult when I have expenses to pay out each month (I have been managing to do this).

I looked into my account insights and have been offered a flexi-loan/business funding from my bank, to help with cash flow, no interest on anything I don’t take out from the fund and I can pay it back every month with no interest. However it scares me with the cost of living crisis that anything could change and then I’m personally responsible for it.

Has anyone been in this situation, and if so how do I handle it? I’m tired of chasing payments but ultimately I do always receive them but generally 2-3 weeks late.

Any advice is appreciated!

What are your payment terms? Would you consider putting new clients on a shorter term?

Cashflow management is obviously always difficult hence why the flexi loan is offered, but ultimately if possible you want to be in a position where you can provide your own ‘loan’ - a buffer in your account that you don’t drop below. Can you work towards that or do you need to pay out all your income at the moment?

Have you looked at using Iwoca for your clients?
Other option you could look into in Invoice Finance

@NoSquirrels My payment terms are within 7 days though some clients have asked for 14 or 28 day payments to help with their own cash flow, which I have accepted, however even these clients don’t stick to this.

At the moment I am lucky to be taking in an income but it’s not allowing me to have a buffer at the moment due to my expenses, which I always pay on time, however I would have a buffer if clients actually honoured the agreed payment terms.

I accept 7 days is a short period for some businesses, but this should have been queries/they should not have accepted and signed the contract if they were unable to pay within this time - it’s really frustrating!

Iwoca is the company who have offered me the flexi loan, however it’s only 10% of last year’s income which is 50% less than what the business is bringing in this year and with this my expenses have also increased x

I can see why you're having issues getting paid within 7 days, most businesses are not set up to pay on those terms and what they tend to do is lump everyone together and pay on one payment run, most commonly at 28 days. Some will pay at the last possible moment eg 56 days regardless of terms.

Are the non payers big companies?

Do you pay your invoices when they are due or per the terms?

It might help your cash flow if you change your expectation of when payment is going to come/your terms and use the flexi loan to help your cash flow.

Balancing working capital is a black art!

Do you mean there is no interest if you repay it within a month? If so, then as long as you pay back in the month, it won’t be an issue. It’s a useful buffer, but I’m surprised it is free credit for a month from a bank.

Have you spoken to companies who owe you money with regards to WHY they pay late?, they may have restrictions internally, ie, only do payment runs once or twice a month, which doesn’t fit in with your terms. Despite contractual terms being signed, the reality is that very few companies pay exactly to terms. I know how frustrating this is.

What are the reasons they give for late payment?

OK, 7 days is a very short term. Most businesses will have their own terms set at 30 days minimum.

Do you have a lot of overheads in terms of buying supplies etc? Can you negotiate with your suppliers for a longer term on that side of things to ease cashflow? Can you ask clients for part payment on account for materials?

Can you offer longer payment terms than the 7 days and offer a discount for early payers. So standard 14 days with an X% off for payment in 7. The 7 day would be your normal price now and the 14 days would be a higher price.

otherwise I think you just need to figure out what the average amount of arrears are and base your cash flow with that subtracted out.

7 days is very short
I think you have to calculate your cash position on the basis of a longer term

I would have a buffer if clients actually honoured the agreed payment terms

If they honoured the payment terms, your cashflow would ease. What I was really getting at is overall are you making a profit and thus can start to accrue a buffer, or are you just breaking even so you can’t start to put by for a buffer?

I think you're setting up your clients to fail. I think you need to look at your payment terms.

You can actually offer iwoca to your clients as well via Iwoca Pay.
Costs you nothing and you get paid straight away and then Iwoca collect from your clients.

depends on who your clients are, but if typically businesses, 7 days is a short turnaround for an invoice to be received, sent for authorisation, added to a payment run. payment run approved and cleared for bank transfer.
As a PP has mentioned, some organisations will only have monthly payment runs; mine does weekly ones, but on average I'd say payments are made on 3-4 weeks.

In your position I'd investigate invoice factoring, either through your bank or a third party organisation, the only way you're likely to get B2B invoices paid on a 7 day time frame. Alternatively, increase your prices so that your working capital can tolerate a more reasonable payment period.
Another option might be to consider DD payment system - but depending on the nature of your business services, it's probable many customers won't sign up to that.

We have changed things here, we wrote to all corporate customers stating that we were having a price increase, however customers would get a discount (ie a smaller increase) for prompt payment within 14 days of receipt of invoice (which we email). With one exception all our customers now pay within 14 days, the one (quite a large organisation, seems very inefficient) pays about 30 days and pays the penalty. Our cash flow has improved enormously.
Previously they'd been stringing out, some up to 56 days or more.

When I worked paying invoices, the companies rule was to never pay on time unless someone kicked up (I don't agree with this of course, but it seems the norm in places I've worked). Could you give yourself a little more time paying your invoices so they are not paid immediately?