How to Fix the $360 Billion Small Business Late Payments Problem

Small- to medium-sized businesses (SMBs) in the United States have a big problem. Ad hoc payments, a non-recurring payment received from a buyer with which a company has had no ongoing business relationship, are received at least once a year by 52% of
SMBs. The businesses that receive these payments rely on them for 38% of their total revenue on average. Many are therefore left struggling to cope with the resulting cash flow crunches.

This is the first of many findings uncovered in Fixing Small Business Payments, a PYMNTS and Ingo Money collaboration. We surveyed 693 payments decision-makers about how many ad hoc vendor payments they receive, how they receive them and how many would pay more to receive those payments instantly. Their answers were used to gauge the scale of the opportunity on which buyers stand to capitalize by offering instant options to their SMB business partners.

Key findings from PYMNTS’ research include:

• Thirty percent of all SMB ad hoc vendor payments are received late. Six out of 10 of those late payments are received as late as one month or more after the due date. What’s more, the dollar value of these late payments adds up to $456 billion of SMBs’ collective total sales, putting tremendous stress on their cash flows.
• SMBs spend a collective $28 billion offering discounts of up to 4.8% to encourage buyers to pay on time. However, many of their ad hoc vendor payments still arrive late, despite the discounts they provide. It is therefore clear that SMBs’ strategy of trying to incentivize buyers to pay on time by discounting their payments needs a reboot.
• Just 9% of all ad hoc payments SMBs receive are paid instantly, even though 75% of SMBs want to do business with buyers that offer free instant payment capabilities. This underscores the extent of the opportunity that buyers have by offering their SMB business partners the instant payment options that they increasingly demand.

There is far more to the ad hoc vendor payment equation than whether they are received early or on time, however. Fixing Small Business Payments provides a 360-degree overview of the role that ad hoc vendor payments play in the complex relationship between SMBs and their buyers.

To learn more about SMBs’ growing demand for instant ad hoc vendor payments, download the report.