Timely payment is a persistently weak link in the financial supply chain. Though that has always been the case, the pain companies feel as a result of late payment has become more severe in the past two years. In the current business climate where disruption is the norm, the impact is concerning — especially for small- and mid-sized suppliers who may be more vulnerable to the effects of unreliable cash flow.

Small business owners must delicately balance incoming and outgoing cash flow, which subjects them to a particular level of sensitivity to payment disruptions and leaves little room for error. For some, the impact of even a week delay in payment can be catastrophic. 

The heart of the economy is small business health. Government bodies around the world have taken notice of how late payment is impacting small businesses. In response, they have taken steps to protect these businesses.

There’s been an uptick in legislation that aims to increase transparency and shield small businesses from late payment. In Australia, the Payment Times Reporting Act requires large businesses to report on when they pay their small suppliers. The European Union’s Late Payment Directive outlines maximum payment terms for small businesses. While there is currently no law regarding supplier payment terms in the U.S., consumer pressure is driving large businesses to implement and report on corporate social responsibility (CSR) objectives. 

On the other side of the coin, an evolving economic landscape has caused mounting challenges in paying suppliers on time. This is partly a result of global supply chain dynamics. Different supplier payment terms, jurisdictional requirements and local payment regulations make it difficult for buyers to standardize supplier payment processes. As an added layer of complexity, many companies are faced with a harsh financial reality: Supply chain disruptions, shortages and slowdowns have hurt cash flow and will continue to do so for the imminent future.

Facing pressure from both sides of the aisle, companies must find solutions that alleviate the pain of late payments and improve financial supply chain sustainability.

One solution is tech-enabled B2B payments, which allow buyers to automate and consolidate all supplier payments onto a single platform. By streamlining supplier payments, companies can more effectively manage and standardize the B2B payment process. Not only will this satisfy regulatory requirements by ensuring on-time payment and providing easier reporting, but it also helps stabilize the supply chain and generate upstream financial stability to vulnerable suppliers.

For suppliers, automated B2B payment solutions provide much needed visibility into invoice approvals and payment dates. In addition to providing tools to better forecast cash flow, the solutions also ensure suppliers always receive payment on time, which allows them to confidently manage their liquidity and saves the headache of chasing down their customers. It’s a win-win for both parties.

Outlook:
The underlying drivers of slow supplier payments aren’t going away anytime soon. Supply chain disruptions and the financial strain they create will remain an issue in the year ahead. But there are ways for companies to solve the problem despite persistent challenges. Automating and standardizing supplier payments through tech-enabled B2B solutions is a great place to start.

Natalie O’Donnell is vice president and head of payment strategy at PrimeRevenue.