More Help Getting Suppliers Paid On Time

A late-payment culture in which more and more companies are considering as normal practice not paying suppliers on time has prompted the creation of yet another system designed to better connect the payment processes of buyers and sellers.

The Basware Pay system from payments network MasterCard and eInvoice specialist Basware comes after a recent Basware survey of international businesses conducted by Loudhouse found that 57 percent of respondents had purposely delayed paying their suppliers in the previous 12 months. Moreover, 74 percent of decision-makers surveyed said late payment is a fact of business life and will always happen, despite 90 percent acknowledging that payment delays have wider repercussions for businesses, such as the ability to pay staff or reduce investment.

The study also found that, while 88 percent of respondents agreed that suppliers should be paid promptly, 67 percent acknowledged they have used payment terms as a strategic lever to help manage cash flow. More than 1,000 strategic decision-makers across the U.S., Europe and Australia participated in the “Creating Payment Energy” research.

Discount panic

In a Sept. 3 blog post, Rowan Lemley, Basware product marketing manager, noted that two-thirds of suppliers are so desperate to get paid on time, they are willing to accept substantial discounts to ensure early payment. “The average discount is 8 percent, but some are willing to go as high as 50 percent!,” he said. “Yet this ‘discount panic’ does the economy no favors–it diminishes the value of products and services and limits business and economic growth.”

Such survey results and suppliers’ willingness to offer discounts to secure payment on time highlight the tension between cash management and efficient payment processes. They also underscore a late-payment culture that affects small and midsize enterprises (SMEs) in particular, as they tend to have the biggest cash-flow issues. This is especially true in countries such as Ireland, where recent research from Sage Ireland found that 59 percent of businesses said invoices paid by check were late. Additionally, of those late payments, 21 percent were more than one month overdue.

Times have been tight in recent years, Lemley noted in his post, but this is clearly not a cash issue, as 40 percent of the businesses Basware surveyed said they had more money in the bank than a year ago. A full quarter of respondents qualify as “cash rich,” with 20 percent or more cash as a proportion of total assets, he said.

“Yet in a nod towards this ‘cash arrogance,’ a third have no stated objective to generate value from these cash holdings, meaning the money is effectively stashed under the proverbial corporate mattress,” Lemley said.

A variety of companies now offer factoring and other services to help suppliers better manage their invoicing processes, including Catamount Funding and PayPlant. A company called Factoring Companies will even locate factoring firms for organizations.

The new Basware system connects buyer and supplier payment processes to improve working capital optimization by allowing buyers to better manage their cash flow and suppliers to get paid sooner.

“When three quarters of businesses have more than 50 suppliers and about two-thirds send and receive more than 100 invoices a month, a culture of late payments impacts individual organizations as well as the economy as a whole,” Esa Tihilä, Basware CEO, said in the product announcement. “While a certain level of cash hoarding may be understandable given the financial climate, it also reflects inefficient processes and poor practices. Businesses have a responsibility to themselves and their supply chain to unlock value and keep money moving.”

With Basware Pay, suppliers’ invoices are sent via the Basware Commerce Network, approved by the buyer and, once approved, become available for payment through a virtual MasterCard account number. The supplier receives an early payment, while the buyer typically has extended payment terms.

Basware recently reported that more than 80 million annualized eInvoice and purchase order transactions are sent and received across its commerce network.

In Lemley’s post, he notes organizations can make two mistakes during times of financial turmoil—not recognizing when such periods have started, until too late, and not recognizing when they have ended. “Sitting on a hoard of cash that is doing nothing for a company or organization, while also delaying payments, is not only morally questionable, it’s simply bad business practice,” he said. “Whatever the circumstances, the ultimate goal of any organization is to build on a foundation of a proactively managed, effective financial position.”