March 2020 triggered a massive slowdown in B2B payment flows from which many businesses have yet to recover. Even today — more than 18 months later —firms are waiting longer to receive payments than they did in 2019.
Among the key frictions that tie up firms’ accounts receivable (AR) and extend their time to realized revenue (TTRR), data reconciliation is foremost. In fact, 44% of U.S. businesses consider this to be their most pressing AR concern, according to Accelerating the Time to Realized Revenue, a PYMNTS and Mastercard collaboration.
That’s almost twice the share of any other problem cited by U.S. businesses, far ahead of the runners-up — manual collection (cited by 21%) and late payments (12%).
Supporting Payments Processes
Some firms are turning to automation to support their payments processes. Large firms have a leg up on their mid-market counterparts here, being 39% more likely to use dynamic terms and three times as likely to deploy artificial intelligence (AI).
Large firms also use digital technologies like these to streamline and automate more of their AR processes. Just 30% of mid-market firms have mostly or entirely automated their payments processes, for example, while 67% of large firms have done the same. Just 9% of mid-market firms have automated their reconciliation processes. Among large firms, this figure is 24%.
Mid-market firms’ slowness to automate is costing them. Those that still use mostly or completely manual payments processes face average days sales outstanding (DSO) times that are as much as 14 days longer than those that have mostly or entirely automated.
Considering Real-Time Payments
Real-time payments are among the many solutions to the challenge. U.S. firms that use them say they improve their overall payments operations by increasing flexibility and making it easier to manage their cash flow. Four percent of U.S. firms say improved reconciliation is the primary benefit they have seen or expect to see from real-time payments.
Despite these benefits, the average U.S. firm only uses real-time payments to make 6.5% of all payments and to receive 6.1% of them. This suggests a massive potential for market growth in real-time payments adoption in the U.S.
Looking to Third-Party Vendors
Several potential roadblocks could be preventing U.S. firms from adopting real-time payments. The foremost of these is a pervasive concern over fraud. Twenty-four percent of the surveyed firms in the U.S. say they are not using and are not interested in using real-time payments, primarily due to worries about fraud risk.
This suggests that although real-time payments can provide myriad benefits to firms, adoption and usage are likely to remain low until businesses feel more confident about security.
Many firms are looking to third-party vendors to help make their long-term innovation plans a reality. Nearly all of the firms surveyed have plans to adopt some type of digital payments innovation in the next five years, and the strong majority of them want third-party vendors to help them do so.