Understanding realities-why consumers struggle to pay on time

There are numerous legitimate reasons why a consumer might struggle to pay your business on time, or at all and many of them stem from financial difficulties.

As business owners, executives and others keeping an eye on the bottom line, you may get angry because some customers have not paid your business and you’re left wondering why.

However, as we indicate here, many circumstances limit a consumer’s ability to pay your business, and they should be considered.

If you want to better understand why some of your customers are not paying, take a look at our insight below.

Unemployment or reduced income can affect consumers’ ability to pay

For some, the loss of a job or a reduction in work hours can negatively impact a consumer’s ability to pay your bill. We know this should be obvious and should be considered when implementing debt collection activity. This situation often arises for various reasons including economic downturns, company layoffs, drastic changes in the health of an industry as well as personal circumstances including illness and in many cases caregiving responsibilities.

Medical expenses, unexpected or not

We seem to constantly juggle how health insurance covers us and what they will pay for. Unexpected medical bills can quickly accumulate for a consumer especially if that individual does not have adequate health insurance coverage. If a health plan has high deductibles, copayments and other expenses not covered by health insurance, that constrains a family’s finances substantially.

Unexpected emergencies

Sometimes, consumers get caught between a rock and a hard place and must quickly pay an unexpected bill. These can come in the form of home maintenance issues or automobile repairs. Most of us need our automobiles to get to work, so that bill typically becomes a priority for people. That consumer may very well have had good intentions of paying your business but ran into this unexpected emergency expense.

Increasing debt

If a consumer has high credit card usage, and they do not pay down that debt, that balance only increases. In 2024, we saw a historically high credit card usage among consumers due to various reasons, including inflation and other variables. These expenses negatively affect how a household will meet its financial obligations. If a person’s employment status has changed and the cost of goods has gone up, they’re more likely to use credit cards.

Housing costs are affecting other expenses

In 2022 and 2023 we saw interest rates rise substantially and that has affected many people paying their mortgages. As most of us recognize, rent or mortgage payments are often one of the largest monthly expenses for individuals and families. As interest rates have gone up, so have many people’s monthly mortgage payment. In many areas of the country, housing costs have also risen which has made it more difficult for some to meet other financial obligations. And if an individual needed to move because of employment, they may have been forced into purchasing a home at a higher interest rate.

Rising utility bills

It seems that in recent years, all utility bills have risen, including electricity, water, heating and air conditioning, and other utilities for our homes and businesses. If you’re in the Northeast, at certain times of the year, you’re coming off months of large utility bills. The same goes for the south after a hot summer. As you well know, this is an expense that a family cannot avoid.

Other basic needs of the family

Inflation has taken its toll on many families and they are faced with limited funds that need to be used for essentials such as food, prescriptions, gas for the automobile and even childcare to list a few. Many families are shuffling bills each month trying to decide what to pay.

Lack of financial literacy

Many consumers may lack basic financial knowledge such as how to budget for expenses, understanding interest rates, impulse purchasing decisions and other mismanagement of money. Those ultimately lead to poor financial decision making and make it more difficult for individuals to manage those debts. This is why financial literacy is so important for everybody.

It’s important for a business to take these realities into consideration when trying to secure payment for overdue invoices. While the business naturally wants to be paid for products and services properly, we should all understand that being empathetic and recognize that many consumers do face financial difficulties may not be able to meet those payment obligations on time.

This is why it’s important to invoice on time, maintain constant communication with consumers who do not pay, and implement diplomatic and respectful debt collection strategies to ultimately secure payment.