Delayed Payment

Delayed payment refers to a circumstance in which a buyer fails to pay the seller of goods or services on the fixed due date as agreed by both parties. It serves the purpose of deferring payments due to problematic cash flow, disrupting supply chains, and hurting smaller businesses. 

 It occurs for various reasons, such as market conditions and unpaid invoices by some customers. It can be used strategically to adjust liquidity support temporarily but must be meticulously managed to avoid financial strain on vendors. 

The delayed payment represents an overdue receivable or invoice yet to be settled within the particular credit terms, generally an invoice date having a 30—or 60-day period. It usually happens because customers do not pay their vendors because of cash flow problems, administrative errors, or disputes. As a result, a domino effect takes place, forcing suppliers to clear their employees and bills.

It leads to several implications, like tense supplier-customer relations, problems in fulfilling financial liabilities, and even potentially costly lawsuits. Moreover, it can also affect the enhanced need for additional financing and administrative costs. There are many ways to avoid it using best practices, as discussed in the subsequent paragraphs, like the proactive approach of follow-ups, impactful credit management framework, and straightforward payment terms. 

For some companies, payment delays might lead to liquidity issues, decreased investment in the economy, and higher borrowing costs. Overall, they can result in a slowdown in economic growth and the maximization of insolvency rates. Therefore, on the whole, payment delays can lead to negative consequences for businesses, highlighting the significance of effective credit management and on-time payments to sustain a sound financial ecosystem.

There have been numerous reasons for delayed payment PayPal:

• Failure to receive or preserve the invoice.
• False claims of invoice payment made by customers.
• Accounts payable need more documentation and information about services or products before paying.
• Dispute on the side of customer seeking resolution.
• Customers or clients are unable to pay and need a payment plan. 
• An issue crept into electronic billing.
• Billing reversal or adjustment needs to be done
• Billing of wrong customers.
• The product or service delivered needed to be corrected or below expectation. 

Let us use a few examples to help one understand the topic.

Example #1

An online article published on 16 August 2023 highlights the challenges faced by pharmaceutical Micro, Small, and Medium Enterprises (MSMEs) due to delayed payments. Vishal Kumar, Senior Director at M1Xchange, emphasizes that delayed payments disrupt cash flow, making it difficult for these MSMEs to invest in growth and meet operational expenses, putting them at a disadvantage compared to larger pharmaceutical companies.

The article also underscores the importance of:

1. Strict enforcement of the MSMED Act 2006 to ensure timely payments.
2. Implementing e-invoicing and digital payment systems to streamline transactions.
3. Amending Section 43B of the Income Tax Act to ensure that deductions are only allowed for payments made to MSME suppliers.

Additionally, the article advocates for awareness campaigns and collaboration among stakeholders to address the issue of delayed payments to pharma MSMEs effectively.

Example #2

Let us assume that in Old York City, the Green Lavet market suffers from a payment delay due to a customer's delayed credit card payment. The customer, Miss Katy, came to the shop for grocery shopping and tried to pay using her card via the swifter-pay system. However, her payment of $100 toward groceries was stalled, and the payment got stuck.

 As a result, the store owner had to use his savings to pay for expenses and suppliers, in addition to his delayed payment loans. Hence, he complained about the hassle of the swifter-pay. Nevertheless, after a few days, the problem was fixed, and the stalled payment was cleared. Hence, the stress he faced has become common due to technical glitches.

It has impacted small businesses in the following manner -:  

• It hinders proper growth of business due to drainage of resources and time arising out of late payments
• Payment delays break the regular cash flow, posing liquidity problems for businesses
• Payment delays also prevent working capital from paralyzing business growth and expansion.
• Forces employees to cut salaries because of reduced cash flows.
• It affects employee productivity and morale due to the above factors.
• Sometimes, budgets also get affected, hampering budget implementation.
• It leads to problems in the preparation of vital financial reports and adhering to regulatory guidelines. 

One must follow the instructions below to avoid payment delays:

• Track expenses and income by creating a detailed budget
• For potential discounts and bill payments, enroll yourself in the autopay system.
• Design reminders and alerts for upcoming due dates of bills.
• Try to prioritize bill payments that impact credit scores over the less important ones if finances are scarce.
• Try to adjust the due dates of payments in line with the salary payment day for better management.
• Review finances regularly to find any possible problem and take appropriate steps to resolve it. 
• Ask for an upfront deposit to secure the job.
• All invoices must have clearly outlined dues dates and payment terms.
• Asses client risk by conducting credit checks.
• Penalties, scope, and payment terms must have been outlined in the detailed contract.
• Encourage clients to settle bills in a timely.
• Utilize invoice tracking apps for efficient reminders and management. 

To successfully handle payment delays, one must adopt the following strategies:

• Set up a clear-cut policy for late payments
• Become proactive related to payment reminders.
• Always communicate professionally.
• Make sure to listen to the client's perspective.
• Provide flexible and diverse payment solutions
• Be active in dispute prevention
• Try and give just a resolution
• Collect supporting documentation
• The issue must be escalated when necessary
• Take learning lessons from experience
• Get ready with a solid contract to protect oneself.
• Give incentives on early payments.
• Think about using a third party for the problem.
• Get to know the right time to walk away.