When running your business or company, monthly dues and invoice payments are bound to happen during the financial year. It is crucial to meet these payments on time; otherwise, it may affect the company's relationship and reduce the chances of getting credits with different companies and brands in the future.
Though every business and company tries to make it on time, keeping in mind the current situations, everything doesn't need to go as planned. Maybe it would have been a hectic month, or you could not keep up with the payment timeline, or it can be another reason.
But whatever is the reason, if you miss the payment, it might affect your credibility and lead to damages.
Therefore, the business needs to be aware of the late payments and their possible effects by considering them seriously since the company agrees to make monthly payments to the concerned.
In this article, we will cover the following:
• What is Late Payment?
• What are the possible consequences of late payment?
• How does late payment affect your credit?
• For how long does a late payment stay on the credit report?
• What are the solutions to avoid late payments?
What is Late Payment?
Late payment refers to an amount of money due for the loans and payments set by the banks, creditors, and financial institutions. In simple words, it is the amount payable to these groups of users.
Usually, the late payment arrives after the payment was due or after the grace period for the payment has passed.
If a company fails to pay the liability of bills, it is considered a delayed payment.
Moreover, late payments are considered very harmful in terms of business creditworthiness and become a barrier for future credit approvals.
What are the possible consequences of late payment?
Understandably, businesses and companies have a lot of payments to make, and there can be many reasons that can lead to delayed payments.
But regardless of the reason, there are several consequences that a business might suffer from.
The possible consequences of late payment are:
- You need to pay the late payment fee that keeps recurring day after day.
- If the reason for payment is not intimated, then the interest amount will be added to the subsequent payment.
- It can lead to possible termination of service or default of a loan.
- The late payment can show up on the credit report.
- The late payments are categorized on a person's credit report by understanding how recent late payments are, how severe they are and how frequently they occur based on the number of days.
How does late payment affect your credit?
The late payment of the company and credit ratings goes hand in hand. The credit reflects the reliability of the company with credit and demonstrates the ability to borrow money.
The credit is affected based on how many days the company is late paying the amount.
The number of days categorized on a person's credit report is 30 days, 60 days, 90 days, and 120 days.
Following is the breakdown of the impact on the credit caused due to late payment:
- Delay of 30 days
- Delay of 60 days
- Delay of 90-days
- Delay of 120-days
1. Delay of 30 days
There are two critical situations to consider; one is less than 30 days late, and the other is a delay of 30 days.
- Less than 30 days late:
For example, if you miss paying the bill, you have the grace period to pay within 30 days to minimize the impact on the credit score.
But if the payment is delayed by less than 30 days, then the company might face the following negative consequences:
- Due fees will be charged for late payments
- There can be an increase in the credit card interest rate
- Delay of 30 days
If the company misses credit card bill payment or loan EMI by 30 days, it will affect the credit only if it occurs frequently.
In this case, the lender or the banking institutions can understand your situation, considering your previous timely payments.
Overall, it won't affect your credit score, but if it occurs frequently, your credit will drop by 100 points.
2. Delay of 60 days
If the company misses credit card bill payment or loan EMI by 60 days, it will duly affect and harm the credit score.
One of the most significant disadvantages of a delay of 60 days is that it appears on the credit report because most lenders report to the credit bureaus every 30 days.
3. Delay of 90 days
If the company misses credit card bill payment or loan EMI by 90 days or more than 90 days, then it will be noted on the credit report and classified as non-performing assets (NPA)
A late payment on the credit report is likely to stay for seven long years, affecting the company's future loan eligibility and interest rates.
It can hamper the company's credit report that might affect their plans for the future.
4. Delay of 120 days
If the company misses credit card bill payment or loan EMI by 120 days, it will appear as "collection" on the credit report.
The delay of 120 days turns out to be very costly for the businesses and has a significant decline in the credit score.
In most cases, the credit scores felt worse.
Therefore, credit scores weigh a lot of information and are often considered a deal-cracker (for the companies who have a good credit score) or a deal-breaker (for the companies whose scores are affected due to late payments).
Late payments can brutally affect the credit score and, in severe cases, lead to a proper default or court judgment.
All of these cases might have a severe impact on the credit scores that can affect the company's future growth potential.
For how long does a late payment stay on the credit report?
If the statement of late payment is recorded on your credit report, then it usually stays for seven years. But the lenders will pay more attention to the recent credit history, which is why the impact of the score gets reduced as time passes.
It is recommended that the companies keep their future payments ready in advance to improve their score on time and get approved for credit at a better rate.
What are the solutions to avoid late payments?
As already mentioned, the companies try their best to avoid late payment in the first place, but as it is said, nothing is permanent, and things can change upside down.
The first and foremost thing to do is to contact your creditor or service provider as soon as possible by sending a letter and explaining the reason behind the late payment. Since they are already aware of these last-minute issues, they might give you a temporary solution for the same.
Apart from that, three significant and useful solutions can help you ensure that you don't fall behind on the payment and remember the due dates.
- Set up reminders
- Select auto-debit option
- Opt for weekly-fortnightly payments
1. Set up reminders
Since the companies have to pay a lot of bills and liabilities, it is adequate to pay the dues on time by setting up reminders rather than mugging up multiple things in mind. You can use applications, calendars and accounting softwares like Deskera to keep track of your invoices and payments, giving you a clear picture of what you are owing, how many you are owing, and when it will mature.
With this, you can also ask your creditors or money lenders to send you reminders of your payment before the due date such that they are also in the loop for timely payments.
2. Select auto-debit option
Humans are not machines, and it is totally natural if the companies forget to make payments by the due date. You can authorize the issuer to automatically deduct the outstanding amount from the bank account every month by selecting the auto-debit option.
For example, if the company buys a car, then when making the contract, they can allow the issue to detect a certain amount from their bank account every month on a particular date.
It will help the company relieve the burden and pressure to set money aside for payments.
3. Opt for weekly-fortnightly payments
Sometimes, the companies receive their payments during the middle of the month, so instead of paying monthly, they prefer to make weekly and fortnightly payments on the account.
It becomes easier to control the overall balances and pay everything well.
All of these methods will assist you in achieving an excellent credit score and keep you away from paying late payment fees and interest rates.
In this article, we talked about late payments and the impact on the credit score.
Late payments are avoided once in a while, but frequent payments can significantly impact the great score and history. It is the responsibility of the company to avoid late charges by following methods to prevent late payments.
Otherwise, the company might pay additional money to the lender in the form of interest, fees, and penalties. It might not affect the future but also affects the brand image and hampers the company's potential growth in the longer run.
Let's take a look at the key takeaways of the article:
- Late payment refers to an amount of money that is due for the loans and payments set by the banks, creditors, and financial institutions.
- There are a lot of consequences of late payment that a business might face.
- The consequences include late fees, interest amount, possible termination of service, or showing up on credit report.
- The company's late payment and credit ratings go parallelly that reflects the company's reliability with credit and ability to borrow money.
- There are a number of days through which the credit gets affected, i.e., delay of 30 days, 60 days, 90 days, and 120 days.
- The impact on the credit is based on different consequences, depending upon the number of days.
- If the statement of late payment is recorded on the credit report, then it usually stays for seven years.
- Companies use many solutions to avoid late payments.
- These include setting up reminders, selecting auto-debit options, and opting for weekly payments.
- The company's credit score can either be a deal cracker or a deal-breaker.
- The company needs to achieve an excellent credit score that can keep them away from paying late payment fees and interest rates.