Last update 21/08/2019
A financial asset is past due when a counterparty has failed to make a payment when that payment was contractually due.
IFRS 9: Past due status and more than 30 days past due rebuttable presumption:
This sets out a rebuttable presumption that the credit risks on a financial asset has increased significantly since initial recognition when contractual payments are more than 30 days past due.
Past due status is one of three operational simplifications or reliefs to companies for assessment of credit risk, together with the low credit risk operational simplification and the 12-month risks as an approximation for a change in lifetime risks.
Setting suitable payment terms for your customers
Some businesses offer certain levels of credit to customers – ie supplying goods or services to customers before taking payment. However, if customers do not pay promptly, it can place a considerable strain on your business as the income you need to run your business is delayed.
To safeguard your cash flow, you should check up on your customer – by using information supplied by credit agencies, analysing company accounts or obtaining bank and/or trade references before you give credit.
Net 30
This is a common term, which simply means that the client should pay 30 days from the invoice date. You can vary the number as much as you like: Net 7, for example, means that payment is due seven days after the invoice, and Net 15… well, you get the idea.
EOM
This is short for “End of Month”. This might be good to use if you want to make sure all your invoices are paid in the same month as you completed the work, but it has some disadvantages. If you send out an invoice right at the end of the month, for example, you’re giving a client a very short time in which to pay, whereas at the beginning you’ll be giving them more time. It’s probably best to use this term only if you always send out invoices on the same day of the month.
When you’ve done the work, it’s important to send out the invoice promptly. A study by FreeAgent found that:
Surprisingly, sending an invoice quickly even appears to override the terms that you’ve asked for payment – invoices that were sent up to 15 days after finishing the work got paid quickly, even if the payment terms were longer.
On average, invoices sent out within a week were paid within five days, but a week’s delay doubles the waiting time: invoices sent out after two weeks were paid after 10 days.
Past due
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