Coronavirus Puts B2B Payment Timing In A Tailspin

Having invoices financed is one way to combat late B2B payments, but in Europe, one watchdog is raising concerns that new standards for default may see a dramatic rise in soured debts.

A recent Bloomberg report said the EU Federation for the Factoring and Commercial Finance Industry is warning as much as 20 percent of current factored invoices may be considered defaulted under the new standards, totaling $31.3 billion.

The European Banking Authority (EBA) is readying new standards that will also place greater pressure on B2B payment times, with potential widespread ramifications for corporates as well as their financing companies.

In this week’s B2B Data Digest, PYMNTS rounds up the latest data on late payments, including the stats behind the EBA’s new rules.

2/7 Net 14 is a favorable payment strategy for B2B supplier struggling with late payments, according to accounts receivable (AR) management solution provider Collect911. The firm’s founder, Sachin Goyal, penned an article in business.com advising corporates that a new collections strategy should be implemented as a result of the coronavirus crisis. With many businesses lacking the capital to pay their outstanding invoices, “cash-strapped companies will have to switch up their collections playbook to survive,” he said. That includes tactical customer outreach, more flexibility with payment terms that include discount agreements, and considering invoice-backed lines of credit to manage working capital. A collections agency, he noted, should only be used as a last resort.

30 days is the threshold at which an invoice will be classified as late in AR departments under the EBA’s new framework, recent reports said. According to some experts, this classification could lead to factoring and other invoice financing companies cutting off businesses that need to finance outstanding invoices, as more invoices would be considered technically late. One lobby group is now requesting that the EBA amend its grace period for late B2B payments from 30 to 90 days.

36 days is now the average time it takes a business to pay its invoice in Australia, an invoice financing company, Earlypay, has revealed in a survey. According to The Australian, this is a reduction from the pre-2020 average of 43 days and can likely be attributed to government stimulus initiatives to help companies strengthen cash flow. Despite the good news, Earlypay is warning that an end of government aid could lead to a ballooning of B2B payment times and, therefore, a cash crunch for small- to medium-sized businesses (SMBs). The government’s current program to provide payments to businesses based on staff size is set to expire on March 28. “The impact of slower payments will move through the supply chain, with [SMB] suppliers waiting longer to receive payments, adding further cash flow pressure and constraining their ability to cover operational costs,” warned Earlypay CEO Daniel Riley.

$1.8 million is being sought by one supplier of furniture retailer Loves Furniture & Mattresses, The Oakland Press reported. The vendor has filed a lawsuit, accusing the retailer of failing to pay the $1.8 million invoice for products delivered late last year. News of the lawsuit followed Loves’ announcement that it would be closing several stores across the U.S. as part of consolidation efforts. In a statement last month, the firm’s CEO, Mack Peters, pointed to the pandemic as having created supply chain issues. He confirmed outstanding invoices to several suppliers, including a $750,000 invoice it must pay to Fairmont Sign Co. “We are working on trying to pay everybody,” he said in December. “We got a little bit overextended in some areas and we’re trying to catch up with people.”