News Every Day | 08 October 2024, 11:02

Need for Speed: Faster Payments Are Key to Businesses’ Financial Health

Late payments are a growing problem for businesses. Many companies are struggling to manage their cash flow as delays in receiving payments increase. These financial strains can lead to significant operational challenges, particularly for small to mid-sized businesses (SMBs).

The majority of suppliers now report receiving late payments, with many invoices taking months to settle. This delay is putting mounting pressure on businesses. As companies seek solutions, the rise of faster payment methods could offer a lifeline, helping to ease cash flow concerns and strengthen relationships with suppliers.

Late Payments Strain Businesses’ Financial Health

Late payments are becoming a growing concern for businesses, causing financial strain and operational challenges. As delays increase, companies face difficulties managing cash flow, leading to added pressure on accounts receivable.

Delayed payments are a major issue for businesses, and the problem is getting worse.

The majority (51%) of suppliers report that their average payment from customers arrives late. This share is up from 36% in 2021.

Further research reveals that payments for 57% of outstanding invoices arrive late. Moreover, 33% percent are not paid until more than 90 days have passed.

33%

of invoices take more than 90 days to be paid.

Businesses see late payments as a key concern.

Nearly 3 in 10 small business owners cite delayed payments from clients or customers as a top challenge they are facing this year. In 2023, the average days sales outstanding (DSO) for professional services — the length of time it takes to get paid for sales — amounted to almost 48 days. Roughly one-third of payments took at least 60 days to be received.

These payment delays can cause significant challenges for businesses.

PYMNTS Intelligence research reveals that payment delays can cause difficulties for accounts receivable (AR) departments. Companies that allow more than 30 days for invoice payments are 57% likelier to experience significant AR challenges.

When payments take longer than 90 days, it can impede businesses’ ability to cover expenses. Firms may be forced to incur additional costs seeking alternative sources of financing.

Faster Payments Are Key to Cash Flow Management

The expanding availability of faster payment solutions is transforming business cash flow management. Instant payments, such as real-time transfers, are enabling companies to improve financial health, streamline operations and foster growth, especially for SMBs.

Real-time payments improve businesses’ ability to maintain healthy balance sheets.

88%

of payments leaders using faster payment options say these methods enable growth.

A PYMNTS Intelligence survey of heads of payment from middle-market companies finds that instant payments promote businesses’ advancement. Eighty-eight percent of payments heads using faster options such as real-time payments or same-day automated clearing house (ACH) say they enable growth. Further PYMNTS Intelligence research reveals that SMBs using instant methods to send payments have healthier balance sheets.

Moreover, 54% of employees at mid-sized and large businesses say real-time payments are best for urgent past-due payments. Thirty-two percent say these payments are best for making cash flow easier and safer.

Faster payments are becoming more widely available to businesses.

Against this backdrop, instant payments are gaining ground. Recently, FinTech Jack Henry and payments processor Moov partnered to help SMBs accept digital payments, including same-day fund transfers. In August, Adyen and invoicing and payments firm InvoiceASAP debuted an instant payments collaboration focused on small businesses. Meanwhile, Cumula 3 and Paystand teamed up on a B2B payment platform for faster, fee-free transactions, enabling improved cash flow management.

Real-Time Payments Can Improve B2B Relationships

Real-time payments are becoming critical to healthy business relationships, with companies recognizing the value of instant transactions. Many firms report improved supplier goodwill, as faster payments strengthen trust and efficiency across industries.

Instant payments are playing a crucial role in bolstering buyer-supplier relationships.

Two-thirds of SMBs would keep doing business with a company that offered free instant payments, according to PYMNTS Intelligence data.

Firms are recognizing that not having instant payments hurts their supplier relationships. The share of businesses believing such a lack would have little or no impact fell 67% between Q4 2023 and Q1 2024.

89%

of large retailers say offering real-time payments has improved supplier relationships.

Instant payments are becoming more prevalent around the world.

For instance, Visa recently kicked off a cross-border business payments partnership with British FinTech Revolut. The collaboration enables transfers in 30 minutes or less in more than 78 countries and for more than 50 currencies.

Across industries, firms report that real-time payments have improved goodwill with suppliers.

PYMNTS Intelligence findings show that the vast majority of firms in different sectors realize the benefits of faster payments. Eighty-nine percent of large retailers, 91% of manufacturers and 80% of insurers say making real-time payments has improved supplier relationships.

Embrace Instant Payments for Stability and Growth

As businesses navigate an increasingly complex financial landscape, adopting real-time payments is becoming not just an option but a necessity. By leveraging instant payment solutions, businesses can do the following:

Improve cash flow. Instant payments reduce the lag between invoicing and receiving funds. This enables businesses to manage their cash flow more effectively and allocate resources where they are needed most.
Enhance supplier relationships. Offering real-time payments fosters goodwill and trust with suppliers, as timely payments demonstrate reliability and commitment to partnerships.
Boost operational efficiency. With faster payments, businesses can minimize the time spent on collections and reduce accounts receivable challenges.
Increase competitiveness. Companies that adopt instant payment solutions position themselves as forward-thinking and customer-centric, attracting new clients and retaining existing ones.

In today’s fast-paced business environment, the ability to adapt quickly is crucial. Implementing real-time payment systems permits organizations not only to alleviate financial strain but also to drive growth. The time to act is now: Embrace instant payments and reap the benefits for your business and its relationships.

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