Have you ever heard of the boiling frog theory?
It goes like this: if you try to put a frog into a pot of boiling water, they’ll hop right out. But if you put them in lukewarm water and gradually increase the temperature, by the time the water is boiling they won’t jump out.
Now, think about your unpaid invoices as that boiling water. Our research shows that 62% of businesses send over 100 invoices to customers each week. With so many invoices to keep track of, it’s easy for one or two late payments to slip through the cracks. And from there, the number of late invoices can easily increase.
Yup, you guessed it: that makes you the frog.
Unpaid invoices don’t just impact collections. They distort cash forecasts, increase exposure and weaken enterprise risk controls. As AR portfolios grow, unmanaged payment behavior becomes a financial risk you can’t afford to ignore.
Late payments are a part of the cost of doing business, but that cost can add up quickly. Ignoring the red flags makes them more than annoying: they become cash flow killers.
Our latest research shows 81% of businesses follow up 1-4 times on a single unpaid invoice.
That’s hours of work chasing payments instead of:
It adds up fast.
Now consider this: 66% of business are waiting on up to $70,000 in overdue payments every month.
That goes beyond “the cost of doing business.” That’s your cash flow: real money tied up that you could be using to:
This isn’t just about tolerance anymore. It’s about survival. So why would you put up with it? Well, like just about everything when it comes to customer relationship management, it’s nuanced.
So, what’s the good news? More businesses are doing credit checks upfront to avoid taking on customers who might post a financial, legal or compliance risk.
But what about those customers you’ve worked with for years? You have a great relationship. You trust them. They’re fine, right?
Well, this is where it gets complicated.
Our research shows many businesses feel conflicted about about running a business credit check on long-term customers. But even long-standing customers can go downhill quickly if they:
What that happens, your invoices can slide down their priority list. And at the end of the day, it’s your cash flow that’s going to suffer.
It’s great to have a good relationship with your customers, but trust can’t replace credit risk visibility. If risk signals change or appear, you might need to adjust terms. You may:
At the end of the day, keeping your cash flowing and prioritizing collections are your responsibility. Blind trust won’t do anything to help you do your job.
Segment portfolio by payment behaviors: Know who pays on time; and who doesn’t. If you don’t track this, your AR can become reactive and disorganized.
Best practice: create customer portfolios and monitor them for risk changes, such as:
2. Identify causes of late payments: Once you spot repeat late payers, dig into why it’s happening. Ask questions like:
3. Set automated alerts for overdue invoices based on your tolerance: You can use automation to reduce manual chasing.
Set alert rules based on:
You know your cash flow more than your customers. You need to set the limits accordingly.
4. Charge late payment interest: If a customer has ignored more than 5 follow-ups and still hasn’t paid, your business is already paying the price.
Late payment interest can:
5. Re-negotiate payment terms: Payment terms are there to protect your cash flow. And they don’t have to be so rigid.
Example: If you started with Net 90 terms, but by year two your customer:
... It may be time to adjust to:
Customer circumstances change constantly: your terms should change with them.
Lina Chindamo, Director, Enterprise Accounts, Creditsafe
Lina Chindamo is a Certified Credit Professional (CCP) with over 25 years of experience in credit risk management. She has held senior leadership roles with leading companies in multiple industries in the Canadian market such as Sony Electronics, Maple Leaf Foods, and Mondelez Canada. Her experience as a credit professional along with her current role as Director, Enterprise Accounts who works closely with c-suite partners and credit teams across all industries makes her a well-rounded credit professional who is well respected in our industry.