In the midst of a growing supply chain crisis, suppliers are increasingly being forced to accept longer payment terms from buyers. Both sides are desperate to protect their cash, but the trend threatens to undermine the stability of suppliers, and can only serve to exacerbate the situation. In this conversation with SupplyChainBrain Editor-in-Chief Bob Bowman, PJ Bain, chief executive officer of PrimeRevenue, Inc., describes the problem, and offers a possible solution.

SCB: What have you learned in your latest research about the trend in late payments to suppliers?

Bain: COVID-19 and the pandemic have certainly had an impact on cash flow for businesses around the world. Late payments have been an issue well before the global pandemic, but one of the biggest shock absorbers for volatility is cash, and many buyers are using late payments as a financial strategy to gain leverage over suppliers within their supply chain to preserve their own cash. There are new regulatory requirements in some parts of the world that are attempting to put a stop to that, but it doesn't occur everywhere in the world. So we’re seeing late payments having an impact on suppliers.

SCB: When we talk about late payments, do we mean that the buyers are formally stretching out payment terms, or are they just simply not paying on time?

Bain: It's a combination of that, plus a few other things. The pandemic has created a situation where a supplier will send an invoice and the buyer’s accounts payable department might be working remotely, or hasn’t worked through the processes. So we’re seeing an uptick in the amount of time it takes to approve and process an invoice with some buyers around the world. Some industries are seeing 35 or 40 days just to approve an invoice in the remote-work environment we're in. Some buyers are adopting a strategy where they're formally changing negotiated terms to extend payment. We also see buyers that want to delay payments to preserve their own cash, so they’re stringing the suppliers out without notice. That creates uncertainty with suppliers, which can be very problematic and can potentially put them into a negative cash flow position.

SCB: Is there a relationship between the late-payment situation, the sheer volume of commerce we’re currently experiencing, and congestion in the physical supply chain?

Bain: Theoretically, no. I do think the pandemic has affected the efficiency of staffing in a remote work environment, where maybe the entire AP team used to sit together and now they have to connect over Zoom. But a couple things are happening. First of all, most of the volumes are back to where we would have expected them to be if 2020 had never occurred. That means we're back to the levels of 2019, but it's not out-of-the-ordinary growth in terms of the supply chain. I don't think it's related to the volume of transactions and trade that's occurring. And it's not necessarily related to the volatility either. However, it is creating a lot of uncertainty, which might cause buyers to extend payment terms, and that makes people think about cash. Buyers want to hold onto their cash for as long as possible, and suppliers want to collect it as soon as possible.

SCB: You talk about the length of time it's taking just to get invoices approved. What about visibility into payment status? Is that also a problem right now?

Bain: We’ve surveyed our suppliers, and 49% of them cited late payments as their most pressing payment challenges. To go a step deeper, 60% of our suppliers claim that they had to contact their customers between one and 10 times a month to inquire about payment status. And more than 10% of suppliers stated that they had to reach out to their customers more than 10 times a month to understand what the payment status was. So there’s this whole issue of visibility around, when am I going to be paid? How much am I going to be paid? And when can I expect the cash to hit my account? All of that is top of mind for suppliers.

SCB: Is the need to constantly contact buyers about invoices a technology problem, a true visibility problem, or just buyers playing a game with suppliers and refusing to respond even as they refuse to pay?

Bain: Most of our buyer-supplier relationships are in direct materials, the lifeblood of the business. I’m sure that some do that, but I truly don't believe that the vast majority of buyers are playing a game. We believe it’s a technology gap. When a supplier is provided with a portal that provides visibility and transparency into which invoices have been approved, which have been processed, whether there have been any credit memos or offsets applied against what's going to be paid, and when they’re going to receive that money, that gives it the ability to better forecast cash flows and manage the business moving forward. It reduces outside loans and the line of credit that must be secured just so the business can operate. So there’s a gap that needs to be filled, to convey information from the buyer to the supplier. When you can provide that through a SaaS [software as a service] portal that's delivered on a global basis, suppliers can self-support themselves to find the information.

SCB: What are the most popular solutions being sought right now that get suppliers paid, while protecting the cash position of buyers?

Bain: One of the trends we're very much seeing is toward a more complete solution. The market over the last five to 10 years has had a lot of point solutions that don’t completely address supply chain finance. There might be a standalone accounts receivable solution to sell invoices or collect them early, or factor invoices that suppliers are using. The buyer might not have visibility to that. There are payment portals and platforms where the supplier can upload the invoice and it will be automatically fed into the buyer's ERP [enterprise resource planning] system. What we're seeing is a consolidation of all of those solutions into a seamless flow of information across the procure-to-pay process for the buyer, and order-to-cash process for the supplier. As a result, they can see all of that information holistically in their trading partner relationships, the same way that they could see it in an ERP system inside the four walls of their own enterprise.