Late Payments Can Be an Early Warning Signal for Investors

Investors often scrutinize revenue, margins, leverage, and cash flow. They pay less attention to how quickly an organization pays its suppliers. Yet persistent late payment is often an early warning sign of liquidity stress, weak controls, poor governance, and supply-chain fragility long before it becomes visible in financial results. For institutional investors, payment behavior is a leading indicator of risk, resilience, and, ultimately, enterprise value and long-term portfolio returns.

Days payable outstanding (DPO) is the number of days, on average, a company takes to pay its creditors. The issue is not whether the law says 30, 45, or 60 days. It’s whether missing the deadline creates an automatic and credible cost for the payer.

DPO is not inherently negative; disciplined working-capital management can legitimately extend payment cycles. The warning sign is when it rises beyond contractual terms, especially without disclosure or operational justification.

Legislators worldwide have written payment terms into law — 30, 45, and 60 days. The EU Late Payment Directive (2011/7/EU) sets a default 30-day period in business-to-business transactions1, Rwanda’s Law N° 031/2022 establishes a 45-day term in public procurement2, and South Africa’s Public Finance Management Act fixes 30 days3.

The hard part is compliance.

In 2024, more than half of EU companies reported difficulties caused by late payments from public authorities or private clients. Average EU payment periods now exceed 60 days, with governments paying close to 70 days4.

North America tells the same story, with bad debts climbing toward six percent of credit sales. More than half of suppliers worldwide report routine delays, and some sectors are extreme outliers: office-management firms wait an average of 105 days, and most manufacturing suppliers report delays of close to two months5.

These non-compliance signals are everywhere in Rwanda. For example, in April 2026, a parliamentary review by the Public Accounts Committee, with findings from Transparency International Rwanda and complaints from contractors and companies, flagged payments running beyond the legal term as a persistent problem in public procurement6.

In June 2026, the president of the Association of Construction Companies in Rwanda, Sadate Munyakazi, said cash flow remained the sector’s foremost challenge. Delayed payments from public and private clients, he noted, force contractors to pre-finance labor, materials, and equipment for months — a burden smaller firms struggle to carry7. He cautioned, however, that the problem is neither a single-country failing nor confined to the public sector.

These failures typically manifest in several costly ways:

1. Cash-flow strain that cascades into insolvency. The link between late payment and business failure is direct and measurable. Roughly 25% of European bankruptcies are linked to customers not paying on time, and a single payment default materially raises the probability of failure within twelve months8. The macro picture compounds it: after rising 10% in 2024, global bankruptcies are projected to climb a further 6% in 2025 and 3% in 2026 — five consecutive years of increase9. As in Rwanda, the smallest players are most exposed, because SMEs lack reserves and struggle to access affordable credit10.
2. Delayed project delivery and weakened sector contribution. In Rwanda, the Public Accounts Committee reported eighteen government-funded projects worth RWF 16.3 billion left completely stalled11. Across economies, the 2025 EU Payment Observatory report highlights the ongoing damage of late payment to construction and SMEs12, because thin-margin contractors cannot carry the financing gap.
3. SME distress and the enforcement gap. South Africa is the clearest mirror. Its Public Finance Management Act and Treasury Regulation 8.2.3 make 30-day payment a statutory obligation for accounting officers13. Yet enforcement lags: in the second quarter of 2025/26, 112,442 invoices worth R10 billion were paid late and 95,399 worth R12.4 billion remained unpaid at end-September 202514. One supplier described selling his house and cars to survive; another had gone unpaid for two years15 — failings a transparency mechanism could surface.
4. More expensive supply agreements and higher prices. When payment becomes unreliable, suppliers price the risk in. In a recent survey, 26% of B2B decision-makers said they had stopped working with a buyer over late payment16, and in construction, logistics, and transport, suppliers respond by raising prices, tightening terms, or withdrawing trade credit — exactly the dynamic Rwanda’s public-transport operators described when subsidies arrived late.
5. If late payment is a governance signal, the remedy is not simply faster processing. It is better visibility, accountability, and incentive design.

1. Identify the compliance gap

The first step is measuring the compliance gap. Comparing statutory or contractual payment terms with actual payment behavior reveals where organizations are falling short and where suppliers are bearing the cost.

2. Automate invoices — but anchor automation in human judgement

Automating recurring payments removes error-prone manual entry; bulk systems speed staff allowances; scheduled AP-aging workflows give real-time visibility. But we cannot simply digitize the way we have always done things and expect a superb experience. AP leaders need a new mandate: progress over prototypes.

3. Payment Terms Need Enforcement Teeth

In the EU, the proposed Late Payment Regulation — a uniform 30-day cap with strengthened penalties — was shelved in 202517. The 2011 Directive already lets creditors claim interest and recovery costs on overdue payments, but most decline for fear of harming the client relationship18.

The United States shows the opposite model: interest on late federal payments accrues automatically, paid without the supplier having to ask, while the US Office of Management and Budget guidance pushes agencies toward paying within 15 days. Louisiana makes a public entity that misses 45 days liable for interest at 0.5% daily up to 15%, plus attorney fees. The critical difference is not the payment term but the enforcement mechanism. A 45-day deadline has little value if missing it carries no automatic cost for the payer.

Early payment discounts. One lever for working-capital discipline is the early-payment discount — a small reduction for payment inside a short window, rewarding the buyer for the very behavior the law tries to compel.

AI-enabled and empathetic automation. Intelligent systems can flag aging invoices, predict liquidity, and trigger acknowledgements automatically — but the goal is not merely to process a payment. It is to make the vendor feel valued while stakeholder and investor wealth are maximized. Automation should learn from human interaction, not replace the human anchor.

Accounts payable is not just a back-office process. It is a window into organizational quality, governance discipline, and long-term resilience—and therefore a sign investors ignore at their peril.

^{The views expressed are the author’s own and do not represent those of Bank of Kigali or any affiliated entity. The author has no financial interest in any company, product, or service referenced. This article draws on publicly available sources and does not rely on any confidential or employer information.}