Payment congestion: what is it?
These are payment delays that can result from various reasons, such as financial difficulties, cash flow problems, inefficient accounting processes, or a deliberate decision by the company.
Avoiding late payments is essential for maintaining healthy business relationships and ensuring the company’s liquidity. This requires accurate payment tracking, effective cash flow management, payment process automation, and a proactive approach to financial risk management.
The Law on Payment Congestion regulates the timing of payment of invoices and financial obligations in business-to-business commercial transactions. Its purpose is to avoid excessive payment delays, protect the interests of suppliers, and promote fair practices. The main elements of such legislation are establishing maximum payment terms, penalties for late payment, rules for extending payment terms, information obligations, and protection of suppliers.
The maximum payment term for the 2023 invoice is 60 days from the delivery date. The deadline can be extended, but this must be by the law and fairness to creditors.
What are the causes of payment congestion?
The causes of payment congestion can vary due to many factors.
Here are some of them:
- financial difficulties related to the lack of funds to make payments on time
- inadequate liquidity management
- accounting processes and invoices - errors in accounting processes, incomplete or incorrect documents
- conflicts with a customer or supplier
- ambiguities in communication between contracting parties
- delays in the flow of information
- internal problems of the company - changes in structure, layoffs of employees
- unpredictable market changes, such as a decline in demand for the company's products or services
- excessive payment terms can cause difficulties in settling payments with their suppliers
- sudden expenses or investments.
It is worth identifying these causes and taking action to avoid payment congestion and effectively manage payments in the company.
Payment congestion, what is its threat?
Even single payment congestion can be a problem for both companies awaiting their payments and those that delay payments.
Here are some of them:
- poor relations with suppliers may cause problems in obtaining products or services in the future
- penalties and interest
- a deteriorating reputation can create an impression of dishonesty or financial uncertainty
- increased financial costs by paying penalties and interest, which affects profitability
- the threat of liquidation. In extreme cases, especially for small companies, payment bottlenecks can lead to financial difficulties so severe that the company faces the risk of bankruptcy
- liquidity problems make it challenging to settle its financial obligations
- loss of customers. If the company is a supplier of products or services, delays in payment can discourage customers and lead them to seek other suppliers
- difficulties in planning future investments and expenditures
- deterioration of internal relations
- legal risks. In some cases, payment congestion can lead to disputes and legal risks related to violations of contracts or payment regulations.
Therefore, it is essential to effectively manage payments to avoid these potential risks and ensure the company’s liquidity.
How do we deal with payment congestion?
Solutions to this problem require several vital steps:
- monitor and identify problems - collect information on late payments
- negotiate new payment terms with suppliers
- focus on effective management of the company's cash flow
- use automation of accounting and payment processes to reduce time and errors
- find areas where costs can be reduced
- develop a plan to repay outstanding payments and follow it
- if you are a supplier, consider flexible payment terms for customers
- use a loan or credit if necessary
- change your company's accounting and payment processes
- track progress and report on payment management solutions
- seek financial advice in developing strategies to manage payments and avoid payment bottlenecks.
INLOGICA has prepared a modification for the ERP systems Microsoft Dynamics AX 4, 2009, 2012 and Microsoft Dynamics 365, which prevents payment congestions by reporting overdue payments from customers and to suppliers. In case of an audit by the Office of Competition and Consumer Protection, we have full documentation to avoid messy fines.
Check out our application: https://inlogica.com/produkty-i-uslugi/zatory-platnicze/
