Though a universal issue, the late payments challenge has found its epicenter in the U.K., where efforts from regulators and the private sector shine an increasingly bright spotlight on the plight of small businesses looking to get paid on time.
Recent Federation of Small Businesses (FSB) data found as many as 50,000 small businesses in the U.K. close each year as a result of late payments, with overdue invoices to small to medium-sized businesses (SMBs) totaling about $30 billion in 2020.
The culprit behind these delays is often assumed to be a large organization intentionally withholding payment to benefit their own cash flow. But Chaser CEO Sonia Dorais said that’s far from the whole picture. Speaking with PYMNTS, Dorais dove into some of the biggest factors contributing to payment delays for SMBs and why a personalized approach to accounts receivable (AR) can work in harmony with technology to get more cash flowing to where it belongs.
Unpacking The Late Payments Burden
Among the U.K. government’s numerous efforts to crack down on late B2B payments includes the Prompt Payment Code, a voluntary code for the largest of enterprises to vow timely payments to small suppliers — instead of withholding cash for their own financial well-being.
Those scenarios certainly exist, but the reality is, for many small and medium-sized firms, their late-paying customers may not even know they’ve missed an invoice payment.
“It could be the silliest things,” said Dorais. “The customers, they mean well. There could be an expiry date on the card, they may have forgotten to enter their new card details. It could be something as simple as that.”
Investments in payment infrastructure and digital frameworks, including open banking and real-time payment initiatives, are largely aimed at injecting efficiency into transactions. But whether it’s a card payment, check or bank transfer, the chance for a payment to fail — due to fraudulent checks, data entry error or another factor — will always exist.
An Awkward Moment
Regardless of why or how a payment fails or is late, Dorais noted that AR departments are faced with a tough situation to address.
“Asking for your invoices to get paid is awkward,” she said, adding that businesses rarely have the time it requires to chase down those payments. It’s one of many items to tick on the to-do list, which also includes credit checks and credit risk assessments, timely invoicing and customer support.
As such, AR teams have a delicate balance to maintain to ensure invoices are paid without damaging a customer relationship. While automation tools can be helpful, Dorais emphasized the importance of a more personal approach to collections. Identifying the customer’s unique needs and reasons for delaying payment can be instrumental to guiding AR departments towards the right kinds of tools and tactics they need for successful payment.
For those clients struggling with cash flow issues, a payment plan may be in order, for instance — Chaser recently integrated an installment payments feature to support this need. In other cases, it may simply be a matter of an email or phone call to nudge the customer towards updating card details.
“No amount of automation can replace the human intervention of going in and chasing those payments,” she said. “Electronic payments can fail. Technology can only take us so far.”
Helping Customers’ Customers
Considering the level of collaboration required to reclaim delayed and late payments while preserving the buyer-supplier relationship, it’s no surprise that tools designed to support accounts receivable teams are also tools worth taking a look at for the pains of accounts payable.
Tools like payment plans, or integrated payments within invoices to support more efficient transactions and reconciliation, can pull double duty by helping both sides of a B2B transaction.
Dorais noted that with the pandemic highlighting the need for financial technology in the back office, the time is ripe for B2B payments innovation that can support chief financial officers across the payments spectrum. And as B2B FinTech innovation pays closer attention to accounts receivable friction, finance leaders will have greater ability to ease their own late payments burden by working with, not against, customers withholding funds.
While suppliers may benefit from ditching the clients that deliberately deploy damaging payment tactics, Dorais said she and Chaser operate on the assumption that people’s intentions are good and that fostering buyer-supplier relationships can improve payment flows.
“It’s easier to get a payment from a current customer than to find a new one,” she said. “I think that’s where receivables is becoming such a big part of the strategy when it comes to cash flow and ensuring that that your business is growing.”
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