Receiving late payment is a major problem for small and medium enterprises (SMEs). The result is an increase in costs, reduced capital spending and suppliers being placed at risk of going out of business.

How can these businesses tackle late payments?

One way to go about it is to ask for 100% settlement before your goods are shipped. However, suppliers can only do this when one’s product features are much better than competitors and no real substitute products exist.

Having said this, this is unlikely in the real world.  So business owners do what most competitors do.  They set up an internal credit control department, which is independent from the business / operation team.  They are authorized to go after the customer when needed.  Apart from this, companies can also work with banks to factor receivables at preferential rate.  This can be included in the margins model before making a sale to customers.

As such, business owners are not rendered helpless in the face of late payment.  They can protect both themselves and their customer relationships using a well-resourced credit control function.  Conducting careful due diligence and designing contracts with clear terms of credit. Alternative sources of finance could be considered, as well as liquidity insurance.  Finally, suppliers need to be able to distinguish between late payment and genuine credit risk through asking question and investigating individual circumstances.