My Customers Keep Delaying Payment. What Do I Do?

March 9, 2020

Being a supplier for a big company can be both a blessing and a curse. It’s a blessing in that you have a large, stable contract to keep food on the table and cash in the rainy day fund. However, being a supplier for a large corporation also has a set of, let’s say, unique challenges, which a supplier exclusively of small companies does not have.

As a supplier for a small company, the relationship between you and the business is more intimate. Both the supplier and the business need to maintain the relationship to remain stable. However, a large corporation has both the funds and the talent to find new suppliers on a dime. If you’re a small supplier for a big firm, you’re exposed to the whims and wants of that large company.

This manifests, in industry, as the larger company choosing not to pay you, their supplier, on time.

Large companies do this because of the way their capital infrastructure is set up. They need liquidity more than anything else, and they maintain liquidity in the form of cash. Paying cash to your business doesn’t bode well for their liquidity, and since they know that you won’t fire them as a client for one measly delay of payment, they do not pay your business when they’re supposed to.

Large corporations are increasingly using their suppliers as a kind of interest-free lender. They have the product or service you provided, AND the money they owe you, with no repercussions.

It’s understandable, to an extent. They need that money to maintain operations, and those operations keep their company stable, which means your contract is inherently more predictable. And at the end of the day, delayed payment is better than no pay, right?

Regardless of whether it’s a good or bad thing, the fact remains that it’s happening. What’s left now is to find a way to weather these delays in payment so you can stay afloat, regardless of what your client does. Let’s walk through some things you can do when staring down the barrel of a delay of the payment notice.

Option 1: Don’t Settle

Whether or not you feel like it, you have power as a supplier. Your components or services are necessary for the client to create their product, so don’t be afraid to speak up for yourself if your client is trying to delay payment. Structure contracts more aggressively, or issue warnings in response to delay of payments notices. This works best if you provide a product or service for which there are no similarly-priced substitutes. If you’re the only place your client can go, you hold all the cards. Use them.

Option 2: Get Payment in Advance

Again, this strategy works best if you have some amount of sway when it comes to the operations of your clients. If you find them delaying payment, request some amount of payment in advance for the next batch. This protects both you and the client, since they can hold onto some of the cash in lieu of your work, and you have the deposit in case they decide to get “creative” with paying the rest.

Option 3: Charge Interest or Fines

This is a good option even for suppliers without much sway over their supplier’s assembly line. Remind your clients that they are the ones at fault: they’re late payers. Late payers must be punished. Start charging interest or fines on late payments in order to offset the opportunity cost of waiting. This move is 100% morally justified and even expected in the business world, so don’t be afraid to utilize it.

Option 4: Invoice Factoring

Still afraid of giving your additional client terms? Don’t have the credit for a loan, or can’t take on more debt? 

Fear not, there is another way.

Invoice factoring is a concept that gets you instant cash without taking on any debt. Here’s how it works: When you entered into the contract with your supplier, you essentially signed them into an I.O.U. That I.O.U. (or account receivable) is technically an asset, an asset that can be sold.

In fact, some companies specialize in purchasing these receivables so that you can get paid and continue operations. The factoring company does the waiting, not you. While you will  sell the receivables for a discount, you will be able to step away from the edge without sending your client searching for another supplier.

Invoice factoring is considered one of the best, most efficient ways of getting around any financing issue with your company. If you haven’t looked into it, it’s certainly time to do so.

Factoring With Scale Funding

Scale Funding has over two decades of experience in invoice factoring, so if you have any questions or want to see how much you can get for your invoices right now, contact us or check out our invoice factoring calculator.

It’ll be a while before the market corrects this issue with large companies delaying payments. But remember, you’re not alone. Small businesses all over the world are experiencing the same thing. 

Luckily, together, we can make it through, and all come out unharmed.