The average small- to medium-sized business (SMB) receives 72 one-off or nonrecurring ad hoc payments for services rendered or products delivered each year. These are payments for sales to buyers that SMBs work with once, twice or maybe a few times a year.
Thirty percent of those payments for those sales are received late.
SMBs often offer discounts to incentivize their business partners to make payments on time, and they spend $28 billion annually on buyer discounts to do so, according to “Fixing Small Business Payments,” a PYMNTS and Ingo Money collaboration based on a survey of 1,573 U.S. small businesses.
These discounts often don’t have their intended effect, however. More than one-third of all ad hoc vendor payments that SMBs offer discounts for still come in late, and another third are paid on time — not earlier.
Commissions and Marketplace Payments Arrive the Latest
On-time payments are especially important when about half of Main Street businesses fear economic uncertainty and say inflation puts their sales forecasts at risk.
The most common type of ad hoc vendor payments SMBs receive are invoices for freelance, contract and consulting services, followed closely by invoice payments for products sold to other businesses.
One-third of all commissions payments and a third of all B2B marketplace payments are received later than all other types of ad hoc payments. Invoice payments for consulting services and products sold to other businesses are the least likely to be received late, but still, just over one-quarter of them are received after their due dates.
SMBs rarely have the leverage, or even the longstanding relationships, to persuade buyers to make payments according to terms. The irregular nature of the payments also makes it easier for buyers to default to the easiest way to make a payment — by check — adding friction to both the buyer and the supplier.
Removing the Friction From Making Ad Hoc Payments
Still, in today’s fragile supply chain environment, there is growing evidence that buyers want to do right by their small suppliers; they just may not have the right systems and processes in place to offer choice, including instant payments, to those suppliers.
For buyers that want to remove the friction from making ad hoc payments to their smaller suppliers, PYMNTS research revealed important insights.
The first is that SMBs are willing to pay for speedier payments, presenting an opportunity for buyers to monetize both the speed and the choice in how those payments will be received. The study found that just over half of SMBs would be willing to pay a fee to receive instant payments from buyers.
The second is that instant payments drive supplier loyalty and choice. Perhaps unsurprisingly, three-quarters of the SMBs responding to the survey want to do business with buyers that offer free instant payments.
To enable ad hoc vendor payments, vendors are tapping money-out networks and disbursements rails, which also streamline the delivery of ad hoc payments such as claims payments, refunds and rebates, legal settlements, gaming winnings and the like. The incentive for buyers is not only to accommodate SMBs’ need for working capital, but also to monetize speed and choice.