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Late payments, bad debt and inefficient payment systems are plaguing Australia’s largest enterprises

By Australian Fintech

GoCardless, a leading fintech for bank-to-bank payments, has today released the results of a new Forrester study into business payment strategies, which reveals ANZ businesses are struggling to keep up with the pace of the recurring payments landscape, are bogged down my administrative costs and are experiencing strong hits to revenue and profitability as a result of late and failed payments.

Despite widespread calls from the business community for the government to mandate payment terms, the study found that over half (52%) are still experiencing an average day sales outstanding (DSO) of more than 30 days.

It also revealed that over three quarters (77%) of ANZ decision makers are employing more than 20 full-time staff to manage payments for their organisation, suggesting that a high level of inefficiency is plaguing businesses’ payments approach.

Commissioned by GoCardless and conducted by Forrester Consulting, the study surveyed 154 payments decision-makers in B2B and B2C or B2B-only firms with a company revenue of over USD$100M in Australia and New Zealand. Anecdotal findings from the study revealed those surveyed are struggling to keep up with rapid changes in consumer expectations. A challenge that is further amplified by the constant evolution of the recurring payments space, which has become expensive, increasingly complex and requires customisation.

Carolyn Breeze, General Manager, Australia & New Zealand at GoCardless said, “The past 18 months have created a perfect storm for tremendous change in the payments landscape – from the advent of new payment methods, to the progression of open banking frameworks, shifts in customers’ expectations and a slew of regulatory considerations. For businesses in Australia & New Zealand, adapting to these rapid changes has not come easily and while many have been forced to accelerate their payment transformation journeys, the operational challenges still exist.”

“We need mandatory max payment terms”: Late and failed payments, bad debt putting strain on all businesses.

Unsurprisingly, the financial strain felt by businesses as a direct result of the pandemic has had a flow-on effect, resulting in an increase in late and failed payments. In addition to startling figures around increased DSO, a majority (55%) of respondents reported an increase in time taken to receive payments over the past 12 months, impacting workflow and profitability for business creditors.

Consequently, firms are experiencing an increase in bad debt, customer churn and costs associated with payment recovery.

Other key findings from the study included:

  • 74% of respondents listed reducing DSO to be a high or critical priority over the next year

  • More than 7% of payments are failing for a majority (57%) of ANZ organisations over the last 12 months.

  • More than three quarters of those surveyed reported the cost of payment recovery to be over 10% of their average payment size

“Late payments are costing businesses billions of dollars a year. It’s now at a critical point and the current economic conditions and are only amplifying the associated challenges. While technology can solve some of these issues, businesses desperately need support from regulators to finally nip the problem in the bud with some hardline changes, such as mandatory maximum payment terms,” Breeze said.

Digital wallets, bank debit have increased in popularity, cheques are out

Of total payments over the past 12 months, the use of digital wallets increased by 52% and bank debits saw an increase of 44%.

Conversely, manual payment methods are seeing a rapid decline, with cheques experiencing the largest decrease in contribution to total payments. This downward trend with cheques is set to continue in the coming years, particularly in New Zealand, where leading banks have recently announced the phase-out of support for cheques as a payment method.

Manual processes, tech silos are draining staff resources, driving up costs for recurring-revenue models

Manual operations and fragmented systems are creating significant inefficiencies in workflows, driving up administrative costs for 46% of payments decision makers over the last 12 months – with 70% of these respondents citing an increase in administrative costs of more than 10%.

While SaaS and recurring payments have been hailed as smart, sustainable business models, when approached manually, have introduced inefficiencies and pressing issues including:

  • the manual reconciliation process (62%)

  • high operating costs (45%)

  • manual invoicing (43%)

A lack of technology integration is straining business resources, with over three quarters (77 per cent) employing 20 or more full time staff to manage disparate systems.

Investment in payment infrastructure is vital: Opportunities to scale, expand, bolster bottom line lie in smarter systems.

Respondents are confident that payments solutions will lead to improved outcomes for their businesses. In fact 47% of respondents are currently expanding or upgrading recurring payment provider services or planning to invest in one in the next 12 months and 52% are currently expanding or upgrading implementation of a pull-based payment solution or plan to invest in one over the next 12 months.

Respondents believe recurring payments can support scaling and international expansion:

  • Over 40% of respondents believe recurring payments solutions can support customer retention, improve sales and reduce overall payment failure

  • 43% believe these solutions can facilitate compliance with local regulation

  • 38% believe it can support entry into new markets

Respondents also recognise the potential for recurring payments to bolster the bottom line by:

  • improving cash flow visibility (44%)

  • lowering administrative and transaction costs (42%)

  • reducing time to reconcile payments (40%)

  • reducing late payments (38%) and the time it takes to chase unpaid invoices (37%).

Breeze says despite the challenges of the past twelve months, many ANZ firms have taken full advantage of the opportunities to transform and invest in their payments infrastructure as a mission-critical objective.

“Businesses in Australia, New Zealand and around the world have had a huge wake up call. Innovation timelines have been accelerated and many decision makers have realised the critical role that an effective payments strategy can play in improving customer retention, reducing costs and supporting new business development,” she said.

As part of the research series, GoCardless has also commissioned a global study, to explore payments decision makers’ sentiments around the payments landscape in their respective regions, including the UK, the US, Australia, New Zealand, France and Germany.


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