Payment pattern

A payment pattern describes the system and pattern that a debtor's payment to a creditor follows. When referring to a payment pattern, it's often not about how a debtor pays, but more about when the payment is made.

The payment pattern can tell you a lot about the customer and can give indications of their financial situation and circumstances. Payment patterns can vary over time and if there is no explanation or reason for a change, you as a creditor should pay close attention.

Different types of payment patterns

Basically, there aren't many different ways a payment can be made. A payment can be made before the due date, on time, a little late - or only when you as the creditor asks for the money.

If a payment is made early, on time or slightly late, it often doesn't matter much to the creditor. The creditor can simply be happy that the payment has been made in accordance with the agreement.

Such a payment should of course count positively for the creditor, especially if information from payment patterns is used for a possible credit rating or similar.

If, on the other hand, payment is very late, or perhaps only when the creditor sends a reminder for payment, this is obviously negative.

Change in payment patterns

When we talk about payment patterns, changes in payment patterns are one of the most interesting aspects.

If a customer's payment pattern changes negatively - from always paying on time to paying late - it's often a bad sign that your bookkeeper or account manager should be informed of.

This may mean that the debtor is deliberately stalling due to a lack of or poor liquidity, which could result in the payment not being made at all later on.

It should be up to the company's own risk assessment to determine how many late payments can be accepted before it becomes a concern. However, experience shows that changes in payment patterns are often the first sign of financial problems - both for businesses and private customers.

Actively use customer payment patterns

When extending credit to a customer or renewing existing credit, the customer's payment patterns can be valuable information to include in your credit assessment.

If a customer consistently pays on time, you may be able to offer a longer payment term as you historically know that payment will be on time.

If, on the other hand, the customer consistently pays late, you may want to limit your willingness to offer extended credit terms. If you offer payment terms of 7, 14, or even 30 days but know that the customer always pays late, this will effectively result in an even longer payment period.