With faster payments functionality beginning to take off in the U.S., the outlook of how accelerated transaction times might impact B2B payments and, more specifically, the issue of late payments to suppliers, remains unclear.
When NACHA first released its Same Day ACH capability, only about 6 percent of the first 2 million transactions made in the service's first 11 days were B2B payments. That probably won't come as a surprise to many in the B2B payments space, considering that organizations typically try to float their capital for as long as possible, a cash management tactic that can lead to longer payment terms with small suppliers, and the prevalence of late payments.
In the U.K., the issue of late supplier payments has caught the attention of policymakers and small business (SMB) advocacy groups. This week, the U.K. Federation of Small Businesses (FSB) put added pressure on government officials, urging lawmakers to no longer award government contracts to late-paying companies. The FSB's own data found that each small supplier is owed an average of $7,391 in outstanding invoices.
Rimilia, a U.K.-based cash application and accounts receivable solutions provider, said the issue of late payments is not necessarily surprising, considering the long-standing tradition of holding onto cash as long as possible and, therefore, delaying payments to suppliers.
As Rimilia expands into the U.S., the company will be taking lessons it's learned from Europe's own dealings with late supplier payments and the introduction of faster payment capabilities in the market. Steve Richardson, Rimilia co-founder and chief commercial officer, told PYMNTS that faster payment initiatives like Same Day ACH are not the silver bullet of late B2B payments — though not necessarily for the reasons one may think.
"We see faster payments coming into the U.S. market, which we saw in Europe probably 10 years ago, and that made little difference [in late payments], from our point of view," Richardson said. "It actually caused problems before it solved them. Companies weren't any better off after faster payments."
One of the biggest blockades is the fact that, even with the option to deploy faster payments, companies, especially the largest ones, simply won't change their behavior. Richardson likened it to "trying to right the Titanic in a canal." Large enterprises are locked into their payment habits and complex, legacy ERP systems, so initiating any change in technology or behavior is no easy feat.
Yet, another key factor behind faster payments' inability to accelerate supplier payments, both across Europe and in the U.S., is a lack of remittance data, he said. Payments data is often sent separately from the funds, so even if a company receives a payment same day or in real time, information about who sent that payment, and why, still comes on a delay.
"What we found in Europe [was], in many cases, the payment would come on the hour, but organizations were receiving it with less information," explained Richardson. "They didn't know where it was coming from, what organization paid it — there was a disconnect with payments arriving and information not being there."
That disconnect can be found in many transactions, whether via faster payments infrastructure or other rails. This point of friction is particularly challenging across borders, he noted: A lack of remittance data, coupled with currency fluctuations and exchange rates, not only makes it confusing for a company to understand which invoice matches a payment it has received, but can turn accounts receivable into a cost center.
The lack of visibility and data linked to payments has emerged as a focal point for many FinTech firms — with companies like ACH Alert recently announcing a new tool that enables financial institutions (FIs) to more efficiently manage ACH payment file data, or payments messaging firm SWIFT pushing for standardization of that information.
Addressing the remittance data gap may certainly help to spur adoption of digital and faster payments in the B2B arena. However, according to Richardson, it's not going to solve the issue of late payments, particularly in the U.S., where he doesn't see the same type of regulatory pressure on late payers that the U.K. and Europe have imposed.
What will help, though, is the integration of technologies like artificial intelligence (AI) and predictive analytics, enabling companies to adopt what Richardson described as a “predict and prescribe” approach to accounts receivable. Technology and analysis of payment behavior can empower a business to predict when and how a corporate customer will pay. After all, a predictable delayed payment is better than an unpredictable one.
Richardson said technology is able to predict about 70 percent of customers' payment behavior. For the remaining 30 percent, organizations must apply the “prescribe” strategy — that is, to require certain payment behavior from their customers before any agreement is made. Rewarding on-time payments with higher credit limits, for instance, enables businesses to become proactive with their customers' payment behavior and cash management strategies.
“If you look at performance and behavior and predictability, you can turn cash managers into front-line sales people — onboarding the right customers, offering the right credit limits,” he noted. “You're turning customer behavior into a certain way that allows you to trade on a much better, even keel with them.”