Businesses with a healthy cash flow – where the total cash comes in and flows out of the business without much of a disruption – tend to be better placed with regards to decision making and implementing important actions.
Delayed payments from clients can however be hugely problematic to the business. For starters, the business becomes unable to display a true picture of its actual financial standing. Yet, any financial partner, whether corporate or individual, will be interested in this financial situation before entering into any deals with you. Business partners such as shareholders want to know that they are putting their money where there are clear financial gains to expect. And cash flow is the first touch point to provide them with that picture, and an assurance that you are going to handle their money profitably; judging from your past records.
Any time clients don’t pay on time, they leave your business with financial inconsistencies that hurt your chances of landing lucrative deals. The business is likely to fall into debt to cover its recurrent expenditures and stay afloat. The business may find itself in a situation where it cannot pay off its own bills and staff wages on time. It might end up losing its best employees.
Because of these dangers of late paying clients, businesses are keen to research and choose their contracts carefully, get upfront payments or set up recurring payments as ways to circumvent this setback.