The end of the year is an expensive period for companies. In addition to the advance on VAT, there are additional costs such as the end-of-year bonuses. It can be a reason to leave invoices unpaid. That is bad news, because if you close the year with unpaid invoices, they will end up in your financial statements. Your customers, suppliers and banker interpret this as a stain on your creditworthiness. In short: unpaid invoices weigh twice as much at the close of the financial year and are therefore better to avoid.
For many companies and self-employed persons, the end of the (calendar) year also means the close of the financial year. Quite a logical choice, which makes it easier to meet some annual obligations. Consider, for example, tax files or VAT listings.
The downside of the coin: December is pre-eminently the month when invoices dare to remain unpaid. The twelfth month is usually an expensive month with bonuses of all kinds, such as year-end bonuses, spend budgets, etc. In this corona year, the pressure is considerably higher than usual and so we’ll have to be careful with long overdue or unpaid invoices.
Even more harmful
Throughout the year, unpaid invoices ensure that you are confronted with unnecessary interest costs and negative effects on your cash flow. This might mean that you can no longer pay your bills yourself. In the worst case, that can even lift you over the edge of bankruptcy. Remember, one in four bankruptcies is due to unpaid bills.
At the end of the year, at the close of your financial year, the consequences are possibly even more damaging. Since the financial statements you submit are publicly available, your bank, your suppliers and your customers can request and assess your figures.
Not only does everyone see whether and how profitable you are, they also see your ‘trade receivables’. These are the outgoing invoices that have not yet been paid. The ratio between the total amount of your unpaid invoices and your turnover shows how much customer credit you allow your customers. If the ratio of turnover to trade receivables increases over the years, it can be read that you probably suffer from bad payers. Your banker, for example, who studies the figures carefully, will not be very happy. If your creditworthiness is not optimal, your bank will impose stricter requirements on you if you need credit.
The less customer credit you provide, the better. The faster your customers pay, the faster you can reuse the money to invest, pay for ongoing costs, etc. And at the end of the financial year, the higher your credit score.
The shortest possible payment term results in the healthiest possible position for your work capital. It is therefore best to agree an expiry date in your general terms and conditions that is not too far in the future. But what is an acceptable term? The law speaks of a maximum term of 60 days. In practice, a period of 30 days is common between companies. If you do not state a payment term on your invoice, that term is also taken as the default. It happens that large companies agree a payment term of 90 days with small or medium-sized suppliers in a mutual agreement.
Time for action! In other words, with the end of this special corona year in sight, this is your to-do list. Send payment reminders and track bad payers promptly. Don’t you have time for that yourself (after all, you have to run your own business)? Then be sure to engage a third party such as Go Solid in time to collect unpaid and undisputed invoices free of charge.