Why late payments are dangerous for small businesses
Late payments create a situation where a business delivers value but waits too long to receive the money.
For a large company, a delayed payment may be an inconvenience. For a small business with limited reserves, the same delay can prevent it from paying employees, purchasing materials or accepting new work.
Imagine a small supplier that delivers R150,000 worth of products to a customer.
The supplier has already paid for stock, transport and labour. The customer then delays payment for another 60 days.
The supplier must now finance the customer’s purchase while still meeting its own financial obligations.
This is effectively an interest-free loan that the supplier never intended to provide.
Protection 1: Set payment terms before accepting work
Payment terms should be discussed before goods are delivered or services are performed.
Possible terms include:
- Payment before delivery.
- Payment on delivery.
- A deposit followed by milestone payments.
- Seven-day payment terms.
- Thirty-day payment terms for approved credit customers.
Do not automatically offer 30-day credit to every new customer.
A new customer should establish a payment history before being granted substantial credit.
Protection 2: Invoice immediately and correctly
An invoice should be issued as soon as the agreed delivery or milestone has been completed.
Check that every invoice contains:
- Correct customer or company name.
- Correct billing address.
- Invoice number.
- Invoice date.
- Description of goods or services.
- Quantity and agreed prices.
- Applicable VAT details.
- Purchase order number, if required.
- Payment terms and due date.
- Correct banking details.
A missing purchase order number or incorrect billing entity can delay payment even when the customer is willing to pay.
Protection 3: Introduce a payment follow-up system
Do not wait until an invoice is 60 days overdue before contacting the customer.
Use a structured process.
| Timing | Action |
|---|---|
| Invoice date | Send invoice and confirm receipt |
| Before due date | Send a polite payment reminder |
| Due date | Confirm whether payment has been processed |
| 7 days overdue | Contact the accounts department |
| 14 days overdue | Escalate to the responsible manager |
| 30 days overdue | Review credit exposure and consider formal escalation |
| 60 days overdue | Consider suspending further credit or supply, subject to the agreement |
The exact process should be adapted to the customer’s payment terms and any applicable contractual or legal requirements.
Protection 4: Introduce credit limits
A customer who pays late should not automatically be allowed to accumulate more outstanding debt.
For example:
| Customer category | Illustrative credit limit |
|---|---|
| New customer | R0 (prepaid) |
| Established customer | R10,000 |
| Regular customer | R30,000 |
| Approved large account | R75,000 |
These are illustrative limits, not recommended universal amounts. Set limits according to your business’s financial capacity and the customer’s payment history.
Protection 5: Know when to stop supplying
If a customer is seriously overdue and continues placing orders, your business may be increasing its exposure every time it supplies them.
Before accepting another order, review:
- Total outstanding balance.
- Age of the oldest invoice.
- Previous payment behaviour.
- Current credit limit.
- Any disputed invoices.
- Whether the customer has made a payment arrangement.
Where appropriate, suspend further credit supply until the account is brought within agreed limits. Follow the contract and obtain advice before taking action where there is a dispute.
What if a government department pays late?
Businesses supplying government departments should maintain accurate purchase orders, delivery notes, acceptance records and invoices.
Keep a complete record of:
- The original purchase order.
- Proof of delivery.
- The invoice submitted.
- The date of submission.
- The department’s acknowledgement.
- Follow-up correspondence.
- Any queries or disputes.
Escalate unresolved payment issues through the department’s official finance and supplier channels.
Frequently asked questions
This depends on the agreement, applicable law and the type of transaction. Ensure any interest or late-payment provision is properly agreed and legally enforceable.
You can consider early-payment discounts, but calculate whether the discount is cheaper than the cost of waiting for payment or financing the gap.
Your rights depend on the contract and circumstances. Review the agreement before suspending supply.
A combination of clear payment terms, correct invoicing, regular follow-up and sensible credit limits.
Can I charge interest on overdue invoices?
Should I give customers discounts for early payment?
Can I stop supplying a customer who has not paid?
What is the biggest protection against late payment?
Your next action
Review your five oldest unpaid invoices. Confirm whether they are overdue, whether the customer received them and who is responsible for resolving payment.