Customer mispayments can ruin business progress, as it means that they aren’t receiving the necessary funding to keep their operations running optimally. This is especially true if your businesses tend to work with larger clients who each pay huge amounts of money, with one mispayment making a huge dent to your cash flow. Finding ways to reduce the risk of customer mispayments and keep your businesses protected is essential, so you don’t suffer from significant losses.
There are certain types of industries that are more at risk of receiving customer mispayments, making them more in need of certain protocols and strategies to keep them protected. The reasons why each industry is more likely to suffer from mispayments differs, with some of them having delayed payments and others due to confrontation during payment failures.
This guide will look at the types of businesses that are most at risk of getting customer mispayments and how it can impact them. We will then explore some of the solutions that these businesses can try to limit the damage. Read more to find out.
In a survey carried out in December 2018, 41.4% of manufacturing businesses said they were owed between £21,000 and £40,000 in late payments. This is because manufacturing businesses often operate on long credit cycles, thin margins and complex supply chains that are vulnerable to economic volatility. When one large buyer in the industry experiences cash flow issues, they delay payments and this causes a domino effect down to small component makers. This means that everywhere could be paid late or not at all, which can put a lot of stress on the industry.
The transportation industry suffers from a high volume of missed or delayed client payments due to a combination of cultural norms, complex invoicing processes and intentional delay tactics. Recent reports indicate that over 46% of invoices in the sector are paid late, with many taking 30–90 days to clear. Larger companies may intentionally delay payments to manage their own cash flow, leveraging their position to hold onto cash longer.
Services in the telecommunications industry are often delivered on a postpaid basis, which means that customers will get the services before having to pay. This can introduce a credit risk that increases the chances of mispayments. There’s also a layered pricing structure that doesn’t help with roaming charges and promotional discounts all playing their part and making customers more likely to dispute bills rather than pay them straight away. Another major factor is the high-volume customer base, ranging from individual consumers to large enterprises. Each of them have different payment behaviours and financial stability.
This is the industry that has the most complex supply chain relationships with many retailers operating on credit terms with suppliers and business customers. This means that payments can be delayed due to pressures on cash flows and admin errors. There’s also the impact of seasonal fluctuations with retailers being more willing to spend more during peak trading periods and expect strong sales that don’t come to fruition.
The billing system in the healthcare industry has always been complex, which is the main reason why there’s so many customer mispayments. Patients often receive care from multiple providers that will each generate separate bills with different schedules, which can result in patients forgetting when they’re due. Medical billing can also not be transparent and this lack of clarity can lead to surprise bills, which increases the likelihood that patients will avoid payment.
SMEs are often hit hard from payment delays due to existential crises, disrupted payrolls and the large variety of investment branches. Around 38 SMEs close every day in the UK due to late payments, showing the huge impact mispayments can have on businesses of that size. It can cost those within this bracket to lose upwards of 200k in finances annually.
While these types of businesses have the benefit for automatic payments, they can also be negatively affected by customer mispayments if customers leave due to their payment repeatedly failing. When a payment fails, the immediate loss of revenue is compounded by the loss of future recurring revenue from that customer.
E-commerce businesses that primarily operate online are exposed to more fraud and payment frictions than those with physical stores. Complex payment processes play a big part in this with customers less willing to go through a whole form to complete their purchase. Inaccurate payment matching and lack of alternative, instant payment options can also lead to lower conversion rates.
The most effective way to battle against customer mispayments is by getting PH credit insurance for your business. This will keep your businesses finances protected, as it gives you cover in situations where clients payments are significantly delayed. With this, you can avoid any costly delays that can set your business back, so you can continue to operate as normal.
For new or large-account clients, run credit checks via services like Experian to understand their payment history. You should only accept to work with clients who have a good track record of paying on-time, so you can guarantee that they won’t miss any payments.
Require deposits or milestone payments before starting work, especially for new clients. This means that you aren’t going to be wasting precious time doing work and then not getting paid at the end of it. However, this can be risky, as it can negate customers from wanting work from you as they won’t want to pay until they see the results.
Customer mispayments can have a negative impact on businesses, especially startups who need to have a strict balance of their cash flows. If you have a business that falls into any mentioned industries, you need to ensure that you have strategies in place to limit the damage mispayments cause. Make sure your emergency fund is always ready in cases of emergencies.
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