Once an invoice is sold, the funds are transferred to the invoice seller. They use the cash to start new projects, pay rent, wages and taxes. On the due date, the buyer will have to transfer the funds to Investly. Most buyers pay invoices on time. Some invoices are paid before the due date and some just a few days after the due date.
To accommodate national holidays, bank transfer times and other technicalities, no penalties for overdue time are collected for the first three days. However, if an invoice is paid more than three days late, penalties are collected for the full overdue period. It is common practice for companies not to demand penalties from each other during the first two to four weeks. Our approach is a compromise between generally accepted business culture and investor expectations.
Why are payments late?
There are lots of factors that can contribute to a payment being late. We spend a lot of time making sure everything is in place to ensure timely payment to the correct account. When a payment is late, we have a process in place to ensure funds are collected in the full amount as soon as possible. The payment culture varies between countries depending on the cultural norms, the size of the buyer and adoption of modern technology. These are external factors that in most cases, we do not have control over. Nonetheless, having a better understanding of the reasons for late payment goes a long way in understanding invoice finance better.
Most common reasons for late payment:
- Buyer has outsourced their accounting - due to cost-cutting and specialisation, more and more companies are buying accounting as a service. This can cause delays in contacting the person responsible for the transaction, especially in large organisations.
- A buyer makes transfers on certain weekdays or weeks only - in some companies, accountants make payments once a week or once every two weeks. This is largely based on overall business culture and internal procedures in certain companies. The larger the company, the more they are set in their ways. In case payments arrive late on a constant basis, we lengthen the invoice financing period for all future invoices so that the seller pays more and investors see a more accurate financing period.
- The buyer’s representative confirms the invoice but forgets to inform the accounting department. Accountants are relatively conservative people and if they have doubts about any changes made to the payment details, they will usually hold the payment until they have been able to clarify the issue with their employer. It also happens that the buyer’s representative or accountant is on vacation or sick leave on the due date.
- Buyer is always late - it is their policy not to pay on time. Some companies use their suppliers as providers of cost-free working capital by delaying payment. This unethical behaviour is tolerated due to the overwhelming market power of these large buyers - they can choose to and do drop suppliers that are not satisfied with their terms. In case payments arrive late on a constant basis, we lengthen the invoice financing period for all future invoices so that the seller pays more and investors see a more accurate financing period.
- Buyer is waiting for payment from their contractual partner - companies that are working on large projects usually work for a large main contractor, who is in charge of project management. In some cases, there are several layers of contractors, especially when specialist work is required. When payment for the project is contingent on the whole project moving forward, a delay in the work of a third party that is unrelated to the invoice seller can cause a delay in payment.
- The buyer simply forgets - sometimes people simply forget to make the payment on the correct date. Investly sends out automatic reminders every time an invoice is overdue.
- The buyer made the payment to the seller, not Investly - although this is rather uncommon, it happens mostly with new customers. The reason is really simple - the buyer company’s accountant has overlooked the payment details. All buyers are notified of payment details and accountants have to make note of that. The same can happen with invoices that have not been financed with us, in which case we will transfer the funds to the correct receiver after having received the necessary documents.
Most of these cases are resolved within a reasonable amount of time. Cultural differences do play a role and hence we see a difference in payment habits between the UK and Estonia. We constantly monitor the payment habits of business partners and take necessary measures to ensure payment.