How a company pays its suppliers matters a lot. This will determine the number you will get assigned between 0 and 100. Those that are at zero are always on time in paying the suppliers while those who go beyond 90 days after the agreed upon date receive a score of 100. The better the score, the more opportunities a business will have of doing business with the best suppliers.
In the future, these business partners will be in a position to assess your business payment strength, which they use to determine whether they can do business with you or not. As an entrepreneur, it is recommended by experts that you monitor this figure carefully and strive to improve it when it starts to decline.
When Is a Payment Considered Late?
Suppliers work under different terms with various businesses. Some give you 30 days while others give 60 days to pay them. The type of supplies dictates this depending on how perishable they are. This is why some food suppliers will strictly require payment in 30 days or less. And this is the current period in business terms. After this current period, the loan will be considered officially late.
Understanding the Late Periods
Business people who are interested in running their businesses professionally must understand the different late periods that determine the payment index. All are calculated after the current period has elapsed. Remember that the current period varies depending on the agreement, and paying within that time is one of the tips for how to boost a credit score of your business.
If you make the repayment within the first 30 days after the current period, your business is considered to be within the first past due period. Around this time, your payment index number will remain relatively low, and you are hardly considered to have a bad debt.
The second past due period is between 31 and 60 days. Consequently, the payment index will be averaging at 50 depending on the report that has been submitted against your account. At 60 days, the debt may be nearing the last stage, which is not what any entrepreneur would want. After all, 60 days plus the agreed upon period is a lot of time to wait to pay your supplier.
The last stage is the third past due period, which runs from 61 to 90 days. By now, there is no longer a grace period, and the debt will automatically become a bad debt. Those businesses with a figure of 90 are at the apex of debt burden, and they risk enforcement measures by experts to ensure repayment.
The Necessity of a Lower Payment Index Number
As just mentioned, the suppliers may seek the help of debt collectors who will enforce the repayment. Some of them insist on liquidating assets especially when a court battle is involved.
But there is one bad thing that might happen even if no one will take you to court; the credit bureaus will assign your business a lower credit score. And this will affect your business’s financial situation in the future.