More than a third of surveyed finance professionals say more than 10% of payments are late, and the problem appears to be getting worse.  

In a survey of more than 200 U.S. finance and accounting professionals by CreditSafe, a third (32%) of them said that, on average, at least 11% of their invoices are paid late. For almost one in seven respondents, the average proportion of late payments is at least 21%. 

Notably, almost a third (31%) of the participants said their late payments from customers increased over the 12 months before the survey, which was fielded in January. By comparison, 16% said their late payments decreased. 

Further, late payments often transition into non-payments. A disturbing 40% of those surveyed said that at least 5% of their company’s annual revenue is typically lost to bad debt. For 24% the typical annual loss is at least 11%, and for 15% it’s 21% or more. 

Among the common causes of bad debt are customer bankruptcies, in which event customers are unlikely to pay off on vendor invoices, according to CreditSafe, a provider of company credit scores and credit report information. 

Bankruptcy of customers has become a particularly high risk lately. According to the Administrative Office of the U.S. Courts, business bankruptcy filings increased 40% during the year ended June 30, 2024. 

Most survey respondents (86%) said they believe frequent or increasing late payments over a 12-month period have a moderate to high impact on the likelihood that a customer will go out of business or file for bankruptcy. 

Additionally, it’s estimated that 5% to 20% of bad debt is caused by fraud, CreditSafe’s survey report said. As with customer bankruptcies, payment fraud is usually not recoverable. 

A too-common cause is poor communication between a company’s sales and finance teams, which can lead to the acquisition of high-risk customers, according to the report. 

Further blame was assigned to inadequate credit checks on potential customers, which CreditSafe called “one of the quickest ways to increase your bad debt and days sales outstanding.” Existing customers should also be monitored, as their days beyond terms (DBT) could spike drastically in as little as six months’ time, the report said. 

CreditSafe noted that there often isn’t much accountability for those paying late. In many cases, suppliers will continue to work with late payers. In fact, the study found that more businesses would terminate a customer’s contract for breaching the terms or poor performance/quality than for repeatedly paying late for 6 to 12 months. 

One way companies can reduce overdue payments is by segmenting their customer portfolios by payment behaviors, CreditSafe advised. In one group would be portfolios set up so that alerts are sent when anything changes in their business credit report, such as an increase in their DBT above a certain threshold. 

Other tactics include charging late-payment interest and re-negotiating payment terms.