Has COVID increased the pressure to pay late?
Suppliers of every kind have felt the effects of COVID as both sides of the coin try and conserve cash. In fact, conserving so much cash that the late payment challenge has turned into a late payment pandemic. Everyone is affected and everyone needs a solution.
B2B payments present unique challenges for suppliers and buyers and unlike B2C retailers who generally accept immediate payment from the consumer, B2B sees itself mired in a sea of invoices and late payments.
Both NAB and Xero, in separate reports, found that late payments in Australia are piling up for the nation’s small and medium-sized businesses (SMBs). In its Supporting Economic Recovery report, Xero found a total of AU$115 billion in late payments every year and confirmed that 53% of businesses paid their invoices late.
Europe is in no better shape as data released by Sidetrade indicates the number of invoices outstanding longer than 10 days has grown between 50% to 80%. Sidetrade looked at 28 million B2B invoices for over 4 million companies and found that businesses are acting in their own interests to conserve cash by delaying or withholding payments. But by not making payments in a timely manner for products already received or services rendered, these companies are simply passing pain on to their suppliers and other vendors.
The picture in the US is just as bad as the penchant for paying with paper just exacerbates the situation. BigCommerce in their B2B Ecommerce Trend report, point out, old fashion payment methods such as purchase orders and trade credit continue to hinder early or on time payments.
Analysts predict the B2B Ecommerce industry is rapidly expanding and is projected to hit $1.8 trillion by 2023.
So, the propensity to hoard cash at all cost, compounds the already calamitous late payment issue and as the coronavirus continues, SMBs will be hit hardest. East & Partners research, commissioned by Scottish Pacific Index, found SMBs with an annual revenue of $1-10 million have been hardest hit by delays, waiting up to 66 debtor days on average. The range of payment times varied from seven days to over 4.5 months.
The report details that this figure is 3.5 times greater than the federal government’s economic stimulus plan attempting to keep the Australian economy ticking over during the COVID-19 shutdown. The worst-case scenarios see businesses waiting up to four months to be paid.
So, is there an answer?
The solution seems not to lay with the big financial institutions but rather Fintech and the agile thinking of the financial innovators.
Fintechs are filling the gaps and Neil Stewart, CEO of Wunderman Thompson Commerce, remarked: “We’ve seen Covid-19 dramatically shake up consumer retail, so it is unsurprising to see a similar pattern in the B2B landscape".
Their B2B Future Shopper report 2020, including over 200 B2B professionals, found that 46% of B2B purchases are conducted online and 75% of respondents were wanting to purchase from platforms similar to Amazon Business.
When looking at SMBs this figure raised to 87%, indicating that ecommerce technology has the opportunity to provide answers for efficiency and on time payments.
Covid certainly intensifies the late payment dilemma but it also intensifies innovation and entrepreneurship searching for solutions.