While the benefits of fast payment processing for merchants and e-billers are well understood – the pressures of today’s payment landscape mean that the need for seamless billing and payment has never been more pronounced, regardless of whether payments are digital or paper-based.

Firms are juggling the pressures to remain compliant with new regulations and leverage the opportunity such initiatives present, while also ensuring that their business continues to run smoothly. This is a tall order, particularly for firms that are dependent on timely payment of invoices to protect their cash flow.

Billing and payments, as it currently stands, is a cumbersome process. Delayed payment of invoices, which is a substantial challenge, is but one aspect that regulators are looking at. Beyond regulating the space, digital platforms and solutions have the potential to allow greater transparency, streamlined reconciliation and enhanced analytics. Once this revamping of the current process is achieved, it will usher in a new era – billing and payments 2.0.

Drawing on expert voices from XBP Europe, HSBC, Citi, BNP Paribas and Nordea, this article explores the impact of delayed payments, impacted processes and how innovative solutions can offer a solution.

What is the impact of delayed invoice payments on companies?

Richard Lean, strategic opportunities manager at XBP Europe, explains that “we see firms looking to delay payment until the last possible second, just to keep that cash flow in their bank. When firms pay their bills ‘just in time,’ they create knock-on impacts, which reduce the buffer for the receiver to be able to pay their own bills in a timely manner.”

Initiatives like the UK’s Prompt Payment Code aimed to improve large corporates’ late payment behaviour, but has yet to make material differences to statistics in the space: According to the UK Government, £23.4 billion worth of late invoices are owed to firms across Britain.

Recent research from Barclays also shows that three in five (58%) SMEs are currently waiting on money tied up in unpaid invoices. That figure grows for enterprises. For medium-sized enterprises with 50 to 249 staff, those waiting on late payments rise to more than nine in ten (94%). Further, research from American Express has found that 22% of businesses report that payment flexibility has become more important post-Covid-19.

Elena Gomez, EMEA head of domestic payments and receivables and acting global head of instant payments, Citi, states that “on-time invoice payments and cash application continue to be key pain points.

“On the collections side, it has a significant impact on cash flow and liquidity. Minimising Days Sales Outstanding (DSO) is a key element in effective working capital management, which enables companies to continue their production chain. This is particularly important for smaller companies, where collecting on time is critical to continuing production of goods or facilitation of services ensuring the business has adequate funds to support day-to-day business operations.”

Gomez adds that the rising interest rate environment makes this a further challenge, leading to a potential liquidity crunch since credit facilities could be tied to current asset levels.

On the pay-out side, this plays an important role in relationship management with key partners and suppliers and ensuring supply chain stability by helping those partners better manage their working capital. Delayed invoice payment can also generate additional work and resource requirements to manage the ‘where is my payment?’ queries that are bound to come with a delayed invoice payment.

Lewis Sun, head of domestic and emerging payments for Global Payments Solutions at HSBC, states that sales revenue is one of the most important lines on an income statement. When there are delays in invoice payments, companies encounter complexities in recognising the revenue.

“Delayed payments also directly impact DSO and therefore working capital position and cash flow. This has a subsequent impact on credit limits, future sales orders, operational burden and may put a strain on supplier relationships due to the effort involved in collecting the payment.”

Working capital is also highlighted by Lirka Bibezic, head of product management, receivables at Cash Management Competence Centre, BNP Paribas, who explains that tardiness in collecting payments may introduce complications across various facets of the organisation, notably in the realm of accounts payables due to delayed collections.

Accounts receivable and the invoicing process play a pivotal role in determining the cash inflows of a company.  Delays exert a “ripple effect” on payments to suppliers, thereby jeopardising the company's supplier relationships. “Rather than negotiating more favourable terms with suppliers, the enterprise will be compelled to explore avenues for substituting delayed inflows through financing solutions, not to mention its potential ramifications on the organisation's credit rating.”

Marina Repo, head of commercial management in transaction banking, Nordea, emphasised the need for digital transformation: “Companies need to optimise manual, paper-based processes that often result in insufficient handling, they need to digitise the whole end-to-end process.” There are many factors to account for in the e-commerce space, particularly for B2B sales. Large companies, which are increasingly selling their products online, are looking to optimise the payment process. This includes reconciliation and the ability to receive funds at an efficient pace.

Repo explains that the methodology of invoices sent and received is still deeply fragmented. The buyer can receive invoices in so many channels; via paper, email, digital mailboxes and more. This fragmentation risks losing control of documentation, meaning firms may not effectively keep track of whether or not these have been paid.

“On top of that, there is a huge risk of receiving fraudulent invoices if there isn't a party that can prove or place a stamp of trust on the invoices – this is especially relevant for emails or PDF invoices. This concern adds bookkeeping strain on the receiving party.”

Thankfully, tools such as KYC help to resolve the trust element. Having robust, integrated processes in place to handle invoicing will also help to reduce the drag associated with these processes and ensure nothing falls between the cracks.

Why are delayed invoice payments still an issue?

Smaller companies tend to suffer the most as a result of these delayed invoice payments.

Lean elaborates that because there is no immediate downside to larger firms delaying payment to smaller suppliers, the larger companies become complacent. Without effective recourse, smaller firms bear the brunt of a culture of complacency. The situation is actually disadvantageous to both parties. Leans states that payers also have much to gain from giving timely payment, in the form of good supplier relations, and increased trust. Slow payers quickly become known in the market. Over time, this can reach a tipping point where finding suppliers becomes difficult.

HSBC’s Sun explains that the dynamic is especially difficult for SMEs and can be shaped by the quality of the relationship between payment counterparties. For instance, large corporates typically have standardised accounts payable processes, which their buyers adopt. This includes uploading invoice documents into portals where the invoices then get paid on a scheduled basis. These solutions bring clarity to the invoice payment status.

“But for SMEs,” Sun explains, “They normally face the challenges to deploy sophisticated systems to manage the account receivables or payables. Moreover, they may not have strong bargaining power to obtain favourable payment terms. Therefore delayed payments become a common challenge for them.” In essence, the balance of power is not in their favour and this is something that even regulation will struggle to change.

Garima Bansal, global head of domestic receivables, Citi, argues that practical issues on the internal billing processes and approvals side are a key cause for concern. On the payment side, the cause of many of the delays can be due to incorrect payments information, especially the first time a payment is made, says Bansal. Payment information errors can be driven by payment rules and formatting and in some cases, the cycle times of the payment type selected or the availability of the payment type in the selected market.

This is where the right technology can help. Bills and payments software with an integrated messaging app will help to clarify crucial payment details easily. This will avoid errors and remove the need for multiple emails needed to clear up any confusion.

“In addition, for many small and medium-sized businesses that have large corporate companies as suppliers, it implies a short DPO cycle but a relatively longer DSO cycle leading to a longer cash cycle. This becomes especially challenging in a rising interest rate environment leading to profitability erosion,” notes Bansal.

However, the delay in actual physical payment is just one part of the problem: Sending and receiving correct and timely information continues to be an ongoing challenge that causes delays in closing the invoice payment cycle.

How can seamless invoice payments improve this challenge for companies?

The first and most compelling benefit that seamless invoicing can offer is tied to speed.  

Lean explains that tackling complacency through streamlined processes will be key to improving delayed payments. “Often these late payments are not simply a matter of complacency.” The biller ends up waiting for the payer to think about what needs to be paid, how the invoice should be paid, whether the payment method is secure, and how they can get confirmation of the payment.

These considerations take up time, and could be resolved by a “Pay Now” link that would ease the customer’s concerns while dramatically speeding up the payment process for the biller. “The entire challenge of cashflow becomes far easier to manage when money is flowing quickly and customers aren’t holding on to it for any reason other than mere complacency.”

Sun highlights that another key advantage these solutions offer is to allow for the adjustments of credit notes and commercial deductions to be set off against the invoice prior to the payment being made. Corporates will then benefit from faster cash application, improved DSO and certainty on what invoices have been paid or remain outstanding. Working on an integrated platform enables this flexibility, while holding all this data in one centre of truth. This data can be mined to spot trends, track payment times, and gain potential discounts achievable by paying suppliers early, with benefits to cash flow.

For a majority of companies, accounts receivable constitutes one of the most substantial assets reflected on the balance sheet, explains Bibezic. “Enhancing the Order-to-Cash process serves to rectify inefficiencies, culminating in augmented working capital, diminished bottlenecks, and heightened levels of customer satisfaction.”

This engenders a self-reinforcing cycle: an enhancement in efficiency correlates with a reduction in DSO, subsequently necessitating less reliance on external financing. In turn, this leads to an overall amelioration of the financial standing, enabling directed investments in new activities.

What can make a fundamental impact on the issue of delayed payments?

Speed, security, optionality of payment type, and user experience are all key factors that will overhaul the issue of delayed payments thanks to the injection of new smart processes. XBP Europe’s Richard Lean explains that automated workflows and outsourcing present a strong argument for the improvement of delayed payments collection. “With older payment methods, the company may have been paid for a service, but are unaware that this payment has been made due to outdated collection procedures. Whereas with e-billing, everything is automatically reconciled, which means that firms know exactly which bills have been paid so they don’t waste time or effort chasing these bills.”

Digital services now also feature tools such as messaging applications, which can ensure billers and payers are able to discuss and share documents in a secure format. Having a centralised place from which both parties can share information in real time, dramatically reduces delays in the payments process. Lean furthers that consolidation via a centralised e-billing system reduces the number of missed opportunities to spot situations where bulk discounts or administrative expenses could be applied.

Sun states that accounts receivable software companies use technologies which enable the creation of a comprehensive workflow between suppliers and buyers. The entire lifecycle of an invoice and their associated payments can be captured on one system, providing visibility on what has been paid, received, and reconciled. “Moreover, as more and more businesses evolve into a digitised direct to customer model supported by the new technologies, itemised account receivables can be paid instantly before moving to the next step of the business operations – largely eliminating delayed payments.”

Nasser sees new technologies as the enabler that can improve both reconciliation and automation. “Both proprietary solutions such as technology platforms that facilitate automated matching of open invoice data with accounts receivables as well as market led changes such as payment overlay services that support enhanced reconciliation, such as QR codes, both can have a role to play in helping resolve the issue.”

It’s also important to acknowledge the ongoing role of paper-based payments, even in the highly digitised European market. Fast, secure cheque clearing, smooth cross-border payments and automated handling of paper invoices are still important aspects of bills and payments. In this scenario, scanning technologies, language models and AI are all crucial to gathering, organising and sharing vital information.

Should company culture and ethos be targeted to improve this problem?

Delayed invoice payments is a tale as old as time. There are myriad reasons as to why invoices are so frequently paid late, but one way this could be rectified is via company culture. An openness to technology and accepting the long-term benefits a streamlined invoice management and payment structure can offer is a strong starting point.

HSBC’s Sun argues that the payment of invoices needs to be viewed as a priority activity. “Too often, businesses may opt to pay partially or pay some of the invoices to keep a business going. Late payments trickle down through the supply chain, so an increased awareness of the implications and consequences of late payments is required to help drive change. Metrics can be put in place to incentivise timely processing, track daily payments outstanding and support industry benchmarking.”

On incentivisation, XBP Europe’s Lean adds that “if you want to change the behaviour of someone, you either force them to change or you entice them.” He believes that waiting for regulation to come through and force companies into updating their systems is not as effective as pre-empting and reaping the benefits of an early mover, technology-focused advantage.

In addition to incentivisation, Nordea’s Repo believes that adding a financing company as a third party between buyer and seller, to offer buy now pay later payment options, can be another way to relieve the current burden around payments and billing. This would offer a dual advantage of the seller being paid quickly while the buyer can pay later.

“I would say that as a bank, we can help companies in multiple ways, and while the ethos is of course tied to the company culture, we can provide tools for them to either pay later or get paid faster.

“In the future, banks could also offer credit solutions around invoicing.” Extending on the point, Repo says that companies are already starting to use BNPL tools for B2B purchases. “I believe that most companies want to have a seamless experience when they shop as companies, in the same way they do when they are private consumers.”

Will industry regulations and initiatives continue to enhance the user experience of invoicing?

Beyond market demand, various industry-wide regulations and initiatives are likely to shape the future of e-invoicing.

Open banking for instance, which came into effect as the second Payment Services Directive (PSD2) in Europe and Open Banking in the UK, is a clear example. Citi’s Elena Gomez explains that initiatives like open banking can play a role in providing an enhanced user experience in e-billing invoices, embedding payment initiation directly into the experience.

“By integrating the experience directly into the e-billing or invoice process, not only do payers have a better experience, but it can also offer the biller greater control, such as the ability to embed transaction reference information into the payment instruction. Additionally, open banking allows the ability for financial institutions to validate account credentials with the payer / payer bank to ensure that the transaction settles successfully as well.”

Drawing on the more innovative potential that open banking represents, Bibezic cites Robotic Process Automation (RPA) as a tool with the ability “to usher in a fresh era of enhanced efficiency, potentially supplanting manual tasks with RPA solutions in the foreseeable future. Similarly, Machine Learning solutions have the capacity to streamline user interactions with applications and expedite the optimisation of business processes, particularly in realms such as invoice processing.”

Request to Pay is another strong example of how e-invoicing could see dramatic innovation in the coming years. XBP Europe’s Richard Lean explains that the concept of RtP will provide a secure communication mechanism for instant digital payments. “Everything is digitally signed, without raising questions around whether the message that you've just received is from who it pertains to be from.”

RtP can help mitigate late payments by improving the workflow of securely collecting payments and fast-tracking reconciliation, according to HSBC’s Sun. This works well for invoices where the amount due is not subject to deductions and where full payment needs to be made. With request to pay embedded into platforms such as Electronic Invoice Presentment and Payment or Electronic Bill Presentment and Payment, there will be reduced friction in the payment process.

Conclusion

Several benefits come from streamlining the exchange for bills and payments and related processes. Smart contracts, for instance, where contract signing and workflows are automated, help to move projects along setup stages towards payment stage.

These benefits are readily achieved by operating through purpose-built exchanges for bills and payments. These streamlined processes are crucial for the current and future strength of an organisation.

Whether payments are being conducted digitally or via more traditional methods, the objective is the same. Fast, frictionless transactions pave the way for improved efficiency and cash flow, both of which contribute to a healthier bottom line. The importance of this goes beyond cost and time savings. Smooth payments provide a strong foundation to enhance liquidity, which, at the end of the day, is key to thriving in today’s marketplace.