Five years ago, the world was in the grip of COVID. The impact on businesses was unprecedented in the internet age, but just half a decade later, we are back in a different, but strangely familiar, age of uncertainty.
Stock markets have been a roller coaster ride for investors, and The Forbes Recession Tracker is now saying there is a 90% chance of a ‘voluntary’ recession. It’s no exaggeration to say that for leaders in finance and procurement, priorities have shifted significantly since the beginning of the year.
This shift in priorities also aligns with recent research findings from Taulia’s annual supplier survey. Representing 129 countries and incorporating data from over 9,000 businesses, it provides fascinating insight into what is top of mind for finance and procurement professionals around the globe.
It is no surprise that AI is top of mind for so many. As I mentioned in my previous article, research we commissioned last year revealed that over half of all finance functions rely heavily on AI for decision-making. This is backed up by recent research from SAP, showing nearly 50% of C-suite executives are happy to override decisions if AI insights point them in a different direction.
The global impact of late payments
The research also revealed that, for many businesses, one of their key operational challenges – whether they get paid on time – is worsening. Over half (51%) of suppliers said their buyers pay late, a considerable increase from 34% in 2020. Even more concerning, 21% of suppliers reported that their buyers pay invoices more than 30 days late, including 7% who are left waiting more than 45 days.
When suppliers can’t be certain as to when money will come in, the financial uncertainty trickles down through the entire supply chain. Here are some of the most critical impacts:
- Cashflow crunch: For suppliers, a missed or delayed payment can mean difficulty in restocking inventory, covering operational expenses and payroll, or servicing debts. In extreme cases, and especially for small businesses, these can make it difficult for the supplier to keep operating.
- Strained business relationships: Repeated late payments can damage a buyer’s credibility, making suppliers hesitant to enter into future agreements or causing them to enforce stricter terms.
- Supply chain disruptions: A supplier experiencing financial strain due to unpaid invoices may struggle to fulfill orders, leading to delays further up the supply chain. This can cause production slowdowns and shortages.
- Job losses: When businesses can’t maintain healthy cashflow, they are less likely to hire new employees and invest in innovation–and may even struggle to make payroll.
Recently, we have seen governments making some moves to try to tackle the problem. The EU Commission has been working on an update to its late payment regulation. However, it has not been an easy road, and there remain concerns about the impact of a one-size-fits-all approach.
The growing appeal of early payments
In response to cashflow pressures, more suppliers are turning to early payments to unlock liquidity. Nearly two-thirds (63%) of respondents expressed interest in taking early payments, and for many, it has become a core financial strategy: 22% of suppliers already use early payments as a source of external capital.
Suppliers said the benefits of early payments include:
- Access to liquidity without debt: 24% of suppliers said early payments provide crucial working capital without adding liabilities to their balance sheet.
- Bridging cashflow gaps: 24% cited early payments as a tool for smoothing out revenue fluctuations.
- Greater predictability: 20% said early payments help them manage collections better and anticipate incoming funds.
- Stronger buyer relationships: 14% see early payments as a way to build trust and collaboration with their customers and further business relationships.
With economic instability increasing and concerns about the growing costs of doing business across borders, finding alternatives ways to access funds and fill cashflow gaps are becoming even more important.
Insight and agility
Since our survey last year, the economic outlook has shifted considerably. Uncertainty has increased and volatility returned. In these circumstances, a healthy balance sheet becomes even more important. That said, whatever the economic outlook, for businesses, consistent cashflow is critical.
Whether it’s about having the liquidity to enable them to take advantage of opportunities or simply the resilience to ride out economic storms, new technology is helping businesses to get more accurate insights into where risks and opportunities may lie, but without control of their cashflow, it is very hard to respond accordingly. The more routes a business has to access cash when needed, the better–whatever the future looks like.
