Accounts Payable

Vendors Are Changing Payments Habits Fast. Can Businesses Keep Up?

February 2, 2021

Invoice Paid

Estimated Reading Time: 3 minutes

Last year, 43% of invoices in the US, Canada, and Mexico were unpaid by their due date, which is generally 30 days for most companies. In total, the value of invoices that were more than 90 days overdue doubled in the same period, leaving many businesses hanging by a thread.

“We know that paying small businesses late is debilitating, and the practice has increased during COVID-19,” Mike Cherry, national chairman of UK’s Federation of Small Businesses (FSB) told FT.

For example, suppliers in Bangladesh’s garment industry are struggling to survive with USD $1 billion worth of orders canceled during the pandemic. So it doesn’t help that a significant share of businesses are delaying payments to small and midsize businesses (SMBs). By one count, global fashion brands owe USD $84 million to suppliers in Bangladesh alone.

“In thousands of cases a year, this causes the closure of small businesses,” Cherry tells FT.

Closed
Payment behavior of a company impacts vendors and workers at the bottom of supply chains.

Understandably, larger corporations are also financially stressed and trying to hang onto cash. But that’s not the only reason why firms have been slow to pay up. With some employees still working from home, accountants may be cutting checks less frequently or it may take time to switch a supplier to electronic payments.

Even before the pandemic, vendors were facing trouble collecting payments from businesses, with an average of 10% of payments left unpaid or written off as bad debt.

But as COVID-19 continues to drive forward the conversation about the drawbacks of B2B payments, some companies are starting to initiate major changes to support cash flow for vendors – most notably, the move from paper to automation.

Driving digital in 2021

Late payments and a cash flow crunch prompted one in four companies in North America to adopt electronic invoices in 2020. As opposed to checks that have a longer processing cycle, digital payments are immediate and easily processed.

Everything is conducted through a single platform like Beanworks where you can approve an invoice online and initiate domestic or international payments from anywhere. Vendors are paid according to their preferred methods such as ACH/EFT or virtual credit cards, securing companies from risks such as fraudulent payments.

Adapting and thriving during a crisis

Companies are citing speed, security, and transparency as the biggest factors in adopting cloud payments. Those that have made the switch are already reaping big rewards. 81% of businesses have reported a significant improvement in customer satisfaction by paying them through the cloud.

“We have given priority to small and vulnerable suppliers.”

Another payment pattern sprouting out of the pandemic is one where companies pay vendors early to alleviate supply chain risks. Lockheed Martin, a US-based aerospace and defense company started paying their supplier, Perfekta Inc., in half the usual time. “We have given priority to small and vulnerable suppliers,” Lockheed finance chief Ken Possenriede told WSJ. Ultimately, this benefits the firm itself because, without a consistent supply, the business will eventually suffer.

electronic payments
Companies can pay suppliers on time – even if they can’t get into the office to cut checks.

The benefits of electronic payments extend internally as well. In a recent survey, 72% of CFOs said their staff spends about 10 hours per week handling new vendor registration, supplier queries, issuing payments, and managing other accounts payable (AP) tasks. With Beanworks, time-consuming work like verification of vendor data, compliance, and setting up preferred payment methods is managed directly.

Manual overload

B2B transactions depend on robust data-gathering, but many companies rely on manual methods to collect information and complete supplier enrollment. This can disrupt the entire cycle and trigger errors.

Though the impact of the pandemic on vendor payment behavior became all-too-clear in 2020, new payment patterns are beginning to emerge. COVID-19 may have forced accounting departments to step-up their digitization efforts, but it’s something that vendors are embracing much faster than before.

Find out how electronic payments can boost vendor relations for your company

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