For small and medium enterprises (SMEs) in Africa, continuing to deliver goods to a non-paying customer is often a direct path to insolvency.
When borrowing costs and inflation are high, unpaid debt rapidly depletes an operator’s cash reserves.
In Nigeria, where the Central Bank of Nigeria has maintained its monetary policy rate at 27.25%, funding unpaid invoices with bank debt is highly expensive.
SME owners must recognize when to stop supply to a customer who owes to protect their cash flow and business survival.
Calculating the real cost of overdue payments
Many business owners hesitate to cut off a customer because they fear losing future revenue.
However, a sale is only complete when the cash is in the bank.
Deliveries made to a chronic debtor are essentially interest-free loans funded entirely by your business.
Consider a Lagos-based raw material distributor supplying a manufacturer with credit terms of 30 days.
If the manufacturer owes ₦10 million and delays payment to 90 days, the distributor loses purchasing power daily due to double-digit inflation.
If the distributor uses a bank facility to fund operations, the interest on that unpaid ₦10 million eats directly into their profit margin.
Signs it is time to halt shipments
SMEs must establish objective metrics to decide when to stop supply to a customer who owes, rather than relying on emotional appeals or promises.
The first clear signal is the breach of an agreed credit limit.
Every customer should have a maximum exposure limit based on their payment history and your working capital capacity.
Once this threshold is crossed, the billing system should automatically flag the account, and further shipments must be suspended.
A second warning sign is a history of broken payment promises without proactive explanation.
If a client repeatedly misses self-imposed payment deadlines, it indicates severe liquidity stress inside their own business.
A third trigger is when a customer ignores your credit control team but continues to place new orders.
This behavior suggests the buyer is prioritizing other operational expenses over your invoices.
Steps to safely suspend further supply
Stopping deliveries requires clear, documented communication to preserve the relationship while securing your money.
Begin by conducting a contract review to ensure you are not breaching any supply agreement that could lead to legal action.
Send a formal written notification stating that their account has been placed on a temporary credit hold.
The message must state clearly that further shipments are paused until the outstanding balance is brought within agreed limits.
Offer a structured repayment plan rather than demanding the entire balance at once if the client is experiencing genuine, temporary cash flow difficulties.
Require cash-on-delivery (COD) payment terms for any emergency orders while they pay down the old debt.
To implement this strategy immediately, review your accounts receivable aging report today and identify every client with invoices overdue by more than 45 days.
