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When businesses don't pay their bills on time, there can be several potential ramifications, none of which are good.
Business

Why Should I Care About Paying My Bills on Time?

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Back to all posts
Why Should I Care About Paying My Bills on Time?
Business

Why Should I Care About Paying My Bills on Time?

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Back to all posts
Why Should I Care About Paying My Bills on Time?
Business

Why Should I Care About Paying My Bills on Time?

It's vital for a small business to ensure that all bills are paid on time. Once a business starts to get behind on bills, it can be challenging to get caught back up on late payments. There are ways to avoid this. A business should do everything within its means to make sure bills are paid on time.

What happens when businesses don't pay bills on time?


When businesses don't pay their bills on time, there can be several potential ramifications, none of which are good.

It affects their reputation


In today's competitive market, the reputation of a business can make or break the business. Late payments can do severe damage to a business's reputation. As soon as a business starts to make late payments, it is automatically damaging its reputation. In addition, it is just pushing the problem along further because making late payments is not a solution to insufficient cash flow. It is crucial to maintain a good reputation when times are hard because competition might get fiercer. The last thing a business wants is to lose potential or current customers or lose out on a good deal with a supplier. By making late payments, a business is damaging its credibility and failing to solve the problem. There are no advantages to this.

Maintaining a good reputation can also affect the service a business can give to customers. For example, if a business needs a supplier or partner to deliver in a hurry to meet customers' needs, that supplier or partner is more likely to comply if bills have been paid on time. Paying bills on time can, in turn, affect the quality of service that a business can provide.

It impacts their credit profile


It is also important for a business to maintain its credit profile. If a business pays bills late as a habit, it will begin to damage its credit and will be unable to get future credit when necessary. This could lead to the denial of funding opportunities or high deposits being paid. Either way, it's financially bad for a business if they cannot have access to good credit. It can damage the bottom line and affect the quality of services a business can provide.

There might come a time in the future when a business needs a loan for expansion or other purposes. If its credit profile has been damaged due to late payments of bills, the business is unlikely to receive the loan. It might be impossible for them to get funding altogether, which could lead to a complete loss of the ability to expand operations aside from saving up cash which could take a very long time. Being able to secure a loan is essential for a business's survival. 

Even just the ability to get a credit card is essential for a business because such a card is almost always necessary for business-related transactions and other purposes. Not everything can be done with cash. With a poor credit profile, a business is unlikely to get approved even for a simple credit card and will have a tough time maintaining operations with solely cash.

The business' credit profile might also come up if they want to lease equipment that is necessary for their operations. To be denied the opportunity to lease the equipment leaves the business with only the option of purchasing equipment which could be impossible to do if the price is very high. Thus, it is critical to maintain a positive credit profile so that a business doesn't close doors that are necessary for its operational success.

Why should businesses always try to pay on time?


There are several reasons why a business should care about making on-time payments. After all, the business's reputation and positive marketing are crucial to business success. When a business has a series of late payments, these components are directly affected, which can damage the business's ability to operate successfully.

Builds a positive image


Paying bills on time will encourage others to recommend a business positively. If you have unpaid bills with various suppliers and other entities, these people certainly will not recommend the business to others. On the contrary, they might advise people against using the business. Thus, it is important to pay bills on time so that others in the business network are encouraged to keep using the business.

Word of mouth is a potent marketing tool, so it's very important to ensure that all other parties keep a positive image of a business in mind. The owner of a supplying company might be a prominent member of their community where they have the power to reach many people. They might also refer their own customers to a business if they feel positive about it. On the other hand, if they have a negative perception of the business due to numerous unpaid and late bills, they probably won't pass on positive marketing through word of mouth.

Helps build a payment cushion


Finally, paying on time builds up a payment cushion with potential creditors and partners in case it's ever needed. If a business has consistently paid on time over the years, other parties are more likely to forgive one late payment or issue if it ever does arise. If, on the other hand, the business has failed to pay and been late several times, they certainly shouldn't expect any graces or favors when times get rough.

It's always possible that there could be a client who refuses to pay or a month when sales have been abysmal. In these cases, it might be suddenly impossible to pay a bill. It's a lot easier to ask for help when bills have always been paid on time, and there have been no late payments. Other parties are much more likely to expand goodwill if there is a long history of on-time payments rather than a spotty history with consistently late payments.

Timely payments may get you discounts


If you are well capitalized and have a significant amount of cash on hand, paying early can also net discounts for a business. When payments are made early, discounts as high as 10 or even 15% may be applied. Thus, it may be in the business's best interest to make payments early so that they can save money and reinvest into the business. Discounts can add up to a lot of money on a large bill, so it's critical to get these discounts whenever they are offered. But paying early is only a benefit when you know your cash standing and are in no danger of a shortfall.

How businesses can avoid being late on payments


There are two major tips a business can follow to avoid being late on payments.

Streamline invoicing


Streamlining the invoice process can be immensely helpful. It's not necessary to have a complex accounting department or team set up for this. Today's market has plenty of digital tools available that a small business can use to streamline its invoicing. It's also important to set up calendars and reminders so that important deadlines aren't inadvertently missed.

Employ a bookkeeper


It can also be very helpful to have a dedicated bookkeeper who handles invoices and ensures that payments are made in a timely fashion. It's not a good idea to just assume that someone will handle it. A business needs to make sure that one person or team is responsible for handling all outgoing payments. This way, it reduces the chance that somebody overlooks a payment or assumes that someone else will take care of it. Proper delegation in this regard is critical.

What to do if late payments are unavoidable?


In some unusual circumstances, late payments can't be avoided. This may be due to unexpected events or a massive cash shortfall. Perhaps a major client has gone bankrupt or refused to pay. In this case, a business will be best served if they have had on-time payments in the past. Calling to try to negotiate or work with others is much easier if previous payments have been on time. As mentioned before, other parties are much more likely to be accommodating if it is the first time such a request is made.

Also, if credit is available, a company might be able to get a loan or use credit to make a payment. Again, this is why maintaining a good credit profile is essential. If the time comes when a loan is necessary or credit needs to be extended, it is much easier to procure this if there have been no late payments in the past. For this reason, keeping a positive reputation and keeping a strong credit profile can be essential.

It is clear that businesses in today's competitive market need to prioritize making payments on time. Late payments can obviously become a critical issue for a business, and this can happen very fast. By staying on top of payments and not falling into the trap of making late payments, a business can avoid a myriad of problems and issues that come along with failure to pay. Ultimately, late payments are just an endless cycle that pushes a bad problem further down the road rather than addressing it and resolving it. Businesses should do everything within their power to avoid falling into the habit of making late payments.

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