Deep Dive: How A2A Methods Can Help Businesses Fight Late Payments Pains

Nium, Investments, Unicorn, B2B

B2B payments have experienced dramatic disruptions during the pandemic. Buyers wrestling with newfound financial challenges and the shift to remote work are finding themselves less equipped to meet suppliers’ payment deadlines, while vendors have been less capable of enduring waits and cash flow disruptions. Suppliers are thus finding it essential to quickly collect money from clients that can still make payments, but the slow speed of paper checks makes this a challenge. More modern payment methods can help both suppliers and the buyers looking to better support their business partners fight frictions and achieve much-desired speed. 

This Deep Dive examines the growing problem of late B2B payments as well as how account-to-account (A2A) solutions and payment methods like same-day ACH and RTP can address the issue.

Late-Payment Pains

Late customer payments can put suppliers in a financial bind, as not all can comfortably pay their bills while waiting to receive outstanding revenues. These cash flow interruptions are frustrating for firms of all sizes, but they can be particularly detrimental to the small to mid-sized businesses (SMBs) that often operate on slimmer margins and with little savings. SMBs typically face greater risks than their larger counterparts, with a 2019 survey of 610 U.S. SMB owners finding that 31 percent fear going out of business. 

The pandemic is also exacerbating these concerns and making them more widespread. A July 2020 survey of 500 Canadian and 500 U.S. SMBs found that 48 percent believe the next missed client payment could cause them to fold. A separate study surveyed businesses in Canada, Mexico and the U.S. during the same month and noted increases in the amount of overdue funds that businesses were waiting to receive, with 43 percent of the total value of issued invoices overdue in July 2020 compared to 25 percent just one year earlier. Some respondents said they might have to give up on some of these payments or wait extended periods before being able to collect, with many reporting increases in the value of invoices that were more than 90 days overdue. 

Respondents from a Mastercard survey appeared to pin their cash flow pains on clients’ shifting payment behaviors as well as their chosen methods, with 38 percent of SMBs stating that late payments and time-consuming cash and check processing were causing cash flow problems. 

Many clients struggling with financial difficulties have compelled suppliers to agree to extended payment timelines, and slow-to-settle payment methods may keep the latter waiting even longer to receive their funds. Even businesses that have not necessarily experienced serious cash flow interruptions may find legacy payment methods to be burdensome, with 68 percent of respondents saying that depositing cash and checks was too time-consuming. 

Looking Toward Digital

The survey did find that more SMBs are seeking digital transactions, however, with 64 percent trying to shift clients away from cash and check payments. Clients that heed businesses’ pleas and switch to digital methods can choose from options such as credit cards and various types of direct bank A2A transfers. The ACH network facilitates A2A payments in the U.S. and has handled rising transaction volumes over the past several years. Standard ACH transactions settle within three days, meaning that vendors accepting payments this way can get money faster than they would if they waited for checks in the mail. 

The ACH network offers even faster transactions via its same-day ACH option, with funds settling in recipients’ accounts on the same day that payments are sent — provided they are issued before certain deadlines. Same-day ACH usage rose year over year in Q2 2020, and this growing interest could reflect a natural trend, greater usage after the service raised its per-transaction limit, pandemic-driven demand or some combination of these factors. 

Other research determined that B2B supplier payments have been undergoing a steady digital transition and are shifting away from checks as well. Just 28 percent of B2B vendor payments were made via check in 2019 compared to 60 percent in 2010. ACH use also increased during this period, rising from 17 percent of vendor payments and 48 percent of transaction values in 2010 to 27 percent and 66 percent, respectively, in 2019.

Businesses can turn to still-faster payment tools, with The Clearing House’s RTP network offering immediate A2A transactions and enabling clients to send — and vendors to receive — funds 24/7 year-round. A growing number of FIs have connected with the system since its 2017 debut, meaning that access to the network is quickly expanding. Immediate payments could spare vendors from worrying about when checks will reach them and when funds will settle and become available. 

Obtaining quick delivery and settlement times is a high priority for suppliers that have grown wary of late payments during the pandemic. Such benefits could drive suppliers to push their clients toward rapid A2A payments methods, giving them greater certainty that they will receive the funds they are owed on time.