The check is not in the mail — at least not when it should be. That’s the takeaway from a recent Wall Street Journal report that shows payments to suppliers continue to run late, despite signs of pandemic recovery springing up across the segment.
According to the latest numbers, large U.S. companies took an average of 58 days to pay their suppliers in Q1, marking a 5.5 percent increase from the 55-day timeframe set last year.
At the same time, small suppliers are taking the hit, according to data recently released by Melio and YouGov. Facing cash flow crunches created by slower invoice payments, small firms have been forced to postpone hiring, limit inventory purchases and reduce employee hours to make ends meet.
PYMNTS data culled from the SMB recovery series showed that small businesses managed to stay afloat through a variety of means and measures to manage their cash flows. Eighteen percent of Main Street business respondents have cut full-time staff, and 15 percent have lowered workers’ salaries. Another 5.4 percent reported that they’d stopped paying rent, and 7 percent had stopped paying suppliers by the first three months of this year.
So, what is happening? And what might bring the late payments epidemic to a halt?
An Old Problem, Back With a Renewed Vengeance
The pandemic might be a partial explanation for the sudden heat up in supplier payment delays, but the problem predates its outbreak. As of June 2019, cash flow management was already a $3 trillion problem for SMB payments, according to PYMNTS and Fundbox’s research. The study found the problem was widespread and self-perpetuating, with 27.5 percent of firms that frequently receive late payments reporting that they also pay their suppliers late.
The net result, according to Fundbox, was essentially a $3 trillion tie-up in invoices that would otherwise be usable by businesses. Inefficient at best, a growth killer at worst.
But now, the problem has been pushed into overdrive by the pandemic, and the mounting pressures businesses face in controlling their cash flow.
A Global Concern
And recent PYMNTS reporting indicates that the issue of slowing payments transcends national boundaries, with U.K. SMBs facing similar cash crunch woes from not being paid promptly. Twenty-nine percent of U.K. finance leaders cannot process an invoice in less than 20 days, while 46 percent of commercial subcontractors struggle with cash flow due to slow payments.
“This research clearly shows that late payments are causing significant issues for both procurement and finance, causing the business to lose money and even in some cases causing damage to business reputations,” said Daniel Saraste, senior vice president, product strategy at Medius, in a statement.
The Technological Remedies
PYMNTS/Visa data from June showed that despite their persistent cash flow concerns, Main Street SMBs are now a bit more optimistic about their future. They continue to worry about their ongoing cash crunch, but are increasingly looking to technology to expedite real-time movement of funds from their online sales into their bank accounts.
Nearly half of all SMBs report experiencing a cash shortfall at least sometimes — and of that share, some 18 percent report that they are navigating cash shortfalls by delaying payments to their own suppliers.
But what unites SMB merchants, according to the data, is an interest in receiving funds from their sales in real time, with 91 percent reporting that they are at least slightly interested in that feature or are already using it.
Surprisingly, interest in faster settlements was proportional to how long a merchant is waiting today, with 63 percent of merchants who typically wait three or four days for transactions to settle saying they are “very” or “extremely” interested in real-time payouts.
In short, SMBs need a way out of the cash crunch that has plagued them for years — and instant settlements could be a starting point for unwinding the persistent supplier payment problem.