News Article

Credit Management

Process bottlenecks hinder early payment discount opportunities

By CreditMan Tuesday, December 2, 2014

Nearly 80 per cent of international businesses are unable to take advantage of discounts for early payment, due primarily to internal payment process bottlenecks. These are the findings of a global research report by Basware and MasterCard.

The survey also found that 84 per cent of respondents pay suppliers late, with one of the main reasons being the lack of necessary systems and automation to facilitate timely payment. Late payment reduces critical operational expenditure and hinders businesses to accurately forecast their cash position beyond ten weeks ahead – which leads to financial instability and hinders economic growth.

The ‘Creating Payment Energy’ research surveyed over 1,000 strategic decision makers across Australia, Europe and the US to study the dynamics of cash flow and payment processes and their impact on economic performance.

“Paying invoices or getting them paid on time is a challenge for many companies and I’ve met several CFOs that have been frustrated with slow-moving money and cash flow problems. But it does not have to be this way: Early payment can help open up the lines of cash flow while reaping financial and reputational benefits at the same time,” said Esa Tihilä, CEO, Basware. “There is a balance to be recognised on both the supplier and the buyer side though. While discounts are an effective way of encouraging early payment, making them too high can have the same impact as late payments: disrupted businesses, slow growth and a negative impact on the wider economy. By having a clear and up-to-date view of the financial status of the business at all times, combined with efficient and automated payment processes, managers can confidently pay suppliers early without any risk."

“MasterCard’s strategic partnership with Basware aims to solve the problems which, for too long, have kept organisations from improving their existing practices and processes,” said Hany Fam, President, MasterCard Enterprise Partnerships. “Accelerating how businesses pay and get paid has the potential to revolutionize corporate payments and tangibly boost economic growth. MasterCard’s network and innovative technology working in tandem with Basware’s industry-leading purchase to pay platform is the ideal combination to make this happen.”

Research findings include:
· Suppliers are prepared to offer substantial discounts to bring payment forward, potentially and unknowingly undermining their own margin structures. The average discount offered is eight per cent, but some respondents said they will offer 50 per cent or more in certain circumstances

· Respondents estimated that they could save, on average, 14 per cent of overall financial expenditure if all customer invoices were settled on optimum payment terms in their business

· Businesses want to take advantage of these offers, with 44 per cent saying they would prefer to pay immediately for a higher discount

· However, seven out of ten (69 per cent) businesses admitted that process bottlenecks compromise their ability to access supplier discounts

· In fact, only one in five businesses has highly automated processes with fully optimised systems to manage invoice payment efficiently

The research creates a clear picture of the rift that exists, showing that it is not a lack of funds, but rather a lack of capability for businesses to make the most of the savings on offer. While 88 per cent of buyers believe they have a social responsibility to pay promptly, it still takes an average of ten days for payment to take place.

As financial decision makers try to balance the ethical and commercial implications of timely payment with the desire for financial security, there is an important role for the intermediary processes that surround payment. As it stands, the majority of invoices are sent and received via PDFs within emails (48 and 50 per cent respectively). Approximately a third (32 per cent) use EDI/XML systems to send invoices and a quarter receive them this way, while web portals are used by 17 per cent of respondents to send invoices and 19 per cent to receive them.

The research also shows that the benefits of timely payment are many and widely recognised. Four out of ten respondents said that it would help reduce credit lines as well as enable them to invest more in their business overall. Additionally, 36 per cent said it would also improve relationships with creditors and a third viewed it as a way to reduce resources on payment settling.

Enabling businesses to work together for mutual benefit is precisely why MasterCard and Basware have partnered to launch Basware Pay. This solution delivers working capital optimisation by connecting the payment processes of buyers and suppliers.

Additional info

Creating Payment Energy:
Basware Pay: