The COVID-19 pandemic has exacerbated the struggles of businesses in Australia and New Zealand to keep pace with the rapidly changing recurring payments landscape, resulting in lower revenue and profits thanks to late and failed payments.
According to a new survey by leading technology consultants Forrester, a majority of payments decision makers at ANZ businesses with revenue of over US$100 million were experiencing late payments of over 30 days.
The survey, which was commissioned by GoCardless, also revealed a majority of respondents reported an increase in time taken to receive payments over the past 12 months, impacting workflow and profitability for business creditors.
The results reinforce the notion that the financial strain that businesses have experienced during that pandemic has directly led to increased late payments when the industry was already overwhelmed by massive tectonic shifts.
The past 18 months have created a perfect storm for tremendous change in the payments landscape: from the advent of new payment methods, to the progression of open banking frameworks, shifts in customers’ expectations and a slew of regulatory considerations.
For businesses in Australia and New Zealand, adapting to these rapid changes has not come easily and while many have been forced to accelerate their payment transformation journeys, the operational challenges still exist.
Mandatory payments terms and account-to-account payments could be the key
Amongst the findings of the report, 74 per cent of respondents said days sales outstanding (DSO) was a high or critical priority over the next year. More than 7 per cent of payments were failing for a majority of ANZ organisations over the last 12 months. And more than three quarters said the cost of payment recovery eclipsed the average payment size.
What this amounts to is these businesses are effectively extending an extra line of credit to their customers for no return. In fact, they’re having to pay to maintain the line of credit. All this has refreshed calls for mandatory payment terms to help protect industry
Late payments are costing businesses billions of dollars a year. It’s now at a critical point and the current economic conditions are only amplifying the associated challenges.
While technology like the Open Banking framework can alleviate some of these issues through more intelligent and faster transactions, businesses desperately need support from regulators to finally nip the problem in the bud with some hardline changes, such as mandatory maximum payment terms.
Part of the answer could lie in a shift towards account-to-account payments, in another GoCardless commissioned report. According to a separate survey of over 15,000 consumers across the US, Canada, the UK, France, Germany, New Zealand and Australia by YouGov, account to account payments such as direct debit are increasingly the preferred recurring payment option for consumers.
This was born out in the Forrester research as well. Of total payments over the past 12 months, the use of digital wallets increased by 52 per cent and bank debits saw an increase of 44 per cent.
Account-to-account payments tend to accumulate lower levels of late payments and fintech breakthroughs can put failsafe systems in place to further protect organizations and their consumers.
Meanwhile, manual payments have declined. Cheques are basically history as New Zealand’s central bank prepares to decommission them entirely.
Old school players caught out
Organizations with manual operations and fragmented systems have been hit hardest by the surge in late payments.
According to the Forrester research, 46 per cent of payment decision makers had seen an increase in administrative costs in the last 12 months alone, with 70 per cent of those reporting a bump of more than 10 per cent.
Those organizations that have failed to invest in SaaS applications and recurring payments breakthroughs have found themselves experiencing issues with manual reconciliation process (62 per cent), high operating costs (45 per cent) and manual invoicing (43 per cent).
Over three quarters of respondents said they had to employ at least 20 full-time staff to manage their disparate systems.
However, the most agile ANZ firms are protecting themselves from the onslaught of late payments by investing in their infrastructure and as a mission-critical objective.
Businesses in Australia, New Zealand and around the world have had a huge wake up call. Innovation timelines have been accelerated and many decision makers have realized the critical role that an effective payments strategy can play in improving customer retention, reducing costs and supporting new business development.
Almost a majority (47 per cent) of respondents said they were currently expanding or upgrading recurring payment provider services or planning to invest in the next 12 months.