Vendors Are Changing Payments Habits Fast. Can Businesses Keep Up?
February 2, 2021
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.
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.
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.
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
With So Many Payment Options, How Do You Choose the Best One For You?
From virtual credit cards and e-check to ACH, wire transfers, or traditional paper checks, there are more ways to pay than ever before. Understanding your options can help you make the right decision for your business.
The Case For Phasing Out Checks For Good
Checks are still the primary payment method in B2B payments, accounting for 40% of all transactions. This stands in stark contrast to the digital experience today’s organizations are striving to build.
Empower AP with Real-Time Vendor Payment Updates
With Beanworks AP automation, companies can look up the status of vendor payments anytime and from anywhere. By automating AP, all documents are stored in real-time and accessible from the cloud, making visibility and transparency a guarantee.
STRAIGHT TO YOUR INBOX
Stay up-to-date on top accounting and finance trends
Sign up for our newsletter and receive our latest resources, news and insights.
Learn More About Beanworks
Discover how AP automation can free your accounting team from manual data entry, delays, and paper-based processes.