Delayed Payments from Customers Affecting Cash Flow? Here's the Solution

For any MSME business dealing with B2B customers, delayed invoice payments seem to have annoyingly become the norm rather than the exception. 

Whether due to their inefficiencies or intentional delaying tactics, many corporations and wholesale buyers have a track record of paying their suppliers 30, 60 or even 90+ days after receiving invoices. This has critical disadvantage for MSME’s working capital management.

While larger suppliers with sufficient cash buffers and working capital needs can temporarily manage sluggish payments, delayed customer invoices can severely hurt cash flows for most small and MSME businesses.

Even if your business remains profitable and orders are streaming in, lengthy delays in converting sales to usable payment can push operations to a halt.

MSMEs that regularly experience delays in getting paid by customers and have a lot of outstanding bills face several common problems in working capital management, such as:

• Not being able to pay employees and vendors on time.
• Having to stop plans for growing and expanding the business.
• Struggling to keep up with daily tasks and production.
• Being forced to take expensive MSME Business Loan with high-interest rates.
• Having to reject or delay new orders from customers due to increase in working capital needs.

For most MSME business owners struggling with unpredictable, widely varying customer payment cycles, the last thing they want is to have their working capital needs tied up for months after jobs are complete.

So what financing solutions and strategies can be deployed to take control of erratic cash inflows and effective Working capital Management?‍

While customers delaying supplier payments has become an unwelcome norm, it’s important to understand exactly why this happens in the first place. Without clarity on the root causes, businesses can’t deploy targeted solutions.‍

Common reasons B2B customers stall payments include:

While the reasons vary, the end outcome remains consistent - you don’t receive money owed to your business when expected. But understanding the ‘why’ is essential to explore options and solutions.

Buying Short-Term Financing

One of the most deliberate reasons corporations and wholesale buyers delay payments is to finance their own working capital needs. By withholding supplier payments for as long as possible, they are essentially taking low-interest short-term loans to bridge their own cash flow gaps.

Administrative Issues

Sometimes delayed payments come down to sheer administrative problems or oversight on the buyers’ end. Companies lacking efficient bookkeeping result in invoices getting buried, limiting visibility for accounts payable to process them on time.

General Cash Flow Issues

Customers themselves facing tighter cash flows and liquidity crunches will often satisfy only most pressing payment obligations first. Supplier invoices then face neglect or delays despite completed work and delivery.

So how can you fix this?

While no silver bullet exists to fully ensure timely customer payments, implementing the right MSME financing tools and strategies can lead to major improvements.

‍Solutions that enable you to receive owed payments faster include:

As we’ve covered, delayed customer payments severely restrict working capital for growth. Rather than wait 30-90+ days for invoices to convert into usable cash, specialized solutions allow you to tap into pending receivables. Two major options worth exploring are supply chain financing and sales invoice discounting.

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What is Supply Chain Financing?

Supply chain financing (SCF), also sometimes referred to as "reverse factoring" or "supplier finance", is a set of financing solutions aimed at optimizing cash flow and providing access to capital throughout entire supply chains.

‍Supply chain financing enables you to get paid early on approved invoices directly by your buyers through an intermediary Supply chain financing platform. Companies like Bizongo connect businesses across supply chains, facilitate invoice approvals, and coordinate accelerated payments often at tiered discounts for mutual benefit.‍

How it Works:

• Businesses have the opportunity to receive early payments on approved invoices directly from their buyers.
• This process is facilitated through an intermediary supply chain financing platform, acting as a bridge between buyers and suppliers.
• Companies, exemplified by entities like Bizongo, play a crucial role in connecting businesses within supply chains.
• The platform facilitates efficient invoice approvals, ensuring a smooth and transparent transaction process.
• Accelerated payments are coordinated through the platform, offering a win-win scenario for both buyers and suppliers.
• Transactions often involve tiered discounts, providing mutual benefits and incentives for the participants in the supply chain.
  

What is Sales Invoice Discounting?‍

Sales invoice discounting is a dynamic financial solution that falls under the umbrella of supply chain financing. This innovative option empowers businesses to efficiently manage their working capital needs by unlocking the value tied up in unpaid customer invoices.‍

How it works:

• Businesses issue invoices to customers for products or services.
• Engage with a specialized lender offering sales invoice discounting.
• Agree on the percentage (70-90%) of the invoice amount to be advanced upfront.
• Submit unpaid customer invoices to the lender.
• Lender verifies invoices and assesses creditworthiness.
• Lender provides an immediate advance based on the agreed percentage.
• Customers continue to pay the full invoice amount directly to the business.
• Business settles the outstanding amount with the lender upon customer payment.
• Lender deducts fees, including the discount or interest charge.
• The process can be repeated for subsequent invoices, providing ongoing working capital.

Both supply chain finance and invoice discounting let you leverage customers’ creditworthiness to stabilize cash flow during gaps between orders and payments. This provides flexibility to confidently fulfill obligations and pursue progress regardless of delays.‍

Delayed B2B Payments Shouldn’t Be Accepted As The Norm‍

Suppliers and MSME owners need to realize that extensive customer payment delays, no matter how commonplace, actively restrain their progress and potential. Don’t accept being short-changed.‍

Financing Solutions Are Available‍

Between dedicated invoice factoring services, supply chain finance marketplaces with embedded financing, and offering discounts for early payment, viable solutions exist to receive owed money faster.‍

Better Cash Flow Is Possible

‍Depending on circumstances and customer agreements, tools exist to unlock working capital much sooner from completed sale orders and contracts. Improving receivables predictability directly alleviates business volatility.

The bottom line - while larger corporations continue to impose delays to better their own stability, suppliers and small businesses can fight back control through the right MSME financing agreements and discounts. Don’t leave working capital constrained and entirety at your customers’ mercy. You have options to drive early payments and steady operations.

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