A perfect storm: cash collection and the rise of digital payments

Millions, maybe billions, of words have been written over recent months about how businesses have successfully morphed into virtual organisations, with remote workforces leveraging technology to carry on seamlessly delivering their services.

The pandemic exposed a raft of inefficiencies in how payments are made

For many, it’s also meant a significant adjustment in the exchange of value for goods or services – in other words, getting paid.

It’s certainly true that the cashless society has been anticipated for decades, as electronic and digital solutions continue to erode the influence of in-person means of payment like the banknote and the cheque.

But, by enforcing a massive acceleration in the pace of change, the pandemic ruthlessly exposed a raft of remaining inefficiencies in how payments continue to be made today.

Combatting the cashflow crisis

Cashflow is a fundamental issue that, for many businesses, can mean the difference between survival and failure. In recent months, we’ve all heard about the lockdown-related cashflow challenges facing players in sectors like travel, hospitality and entertainment, with many facing the very real prospect of running out of money.

But this is far from the only challenge affecting company cashflows. Recent industry data shows that cash-strapped customers cancelling Direct Debits due to the pandemic’s impact on their own finances has seriously affected UK businesses.

In turn, this has increased the need for companies to chase failed Direct Debits, outstanding invoices and reminders, which becomes more difficult and expensive when working remotely. As a result, an increasing number of businesses are spending more time and money chasing late payments than before the pandemic.

And when the debtor is finally ready to make the overdue payment, they will almost always choose to make it by card – a costlier settlement method by comparison.

Further cash collection pain points include the challenges of using labour-intensive paper-based processes such as reconciliation and cash allocation, as well as sending and tracking invoices.

But today’s payment challenges are not exclusively about getting money into the organisation – there is also an impact on money-out transactions.

Over the past year, for example, many organisations have had to make exceptional payments to their customers, including reimbursements for unused travel passes or event tickets. Traditionally, such payments have been made by cheque – but now, there’s no one in the office to print that cheque, sign it and finally to send it.

This creates yet more complexity, time and expense. And a sound reason to consider doing things differently.

Digital salvation?

To avoid these issues, many merchants and billers can choose to use one of the new digital payment services being created by fintechs, keen to ride the burgeoning wave of new solutions enabled by the early adoption of open banking.

Indeed, the eyes of the world are on the UK’s open banking experience, as businesses damaged by the pandemic seize the lifeline offered by new digital services that enable quicker access to cash.

The Competition and Markets Authority (CMA) has also recently taken a big step in accelerating the adoption of open banking in the UK by mandating Variable Recurring Payments (VRPs) that will allow the automatic transfer of money between a customer’s own accounts.

And uptake has been rapid. Industry research has shown that many businesses started to accept new forms of payment during 2020, with a noticeable increase in the acceptance of mobile payments.

Just consider the speed with which restaurants, for example, have shifted towards using apps for taking orders and payments.

With adoption rates like these, there’s no doubt: had the pandemic struck just a year or two later, the financial stresses faced by so many businesses may not have been nearly as damaging.

Given the technology available and the acceleration of adoption, I sincerely hope that a future crisis of this scale will never again be a reason for impacting company cashflows.

Perfect partners

There are, of course, other forces at play. New advancements or initiatives, such as Confirmation of Payee, Request to Pay, payment APIs, AI and machine learning, all add to the mix.

But the experience of the last 18 months has done more than merely disrupt and accelerate change in the payment and settlement landscape.

It has clarified how organisations view the ‘perfect’ payment partner. The ability to provide advice and access to innovative digital solutions is clearly essential, but it’s far from all. The most urgent need for B2C and B2B companies, for example, is that their partner offers everything in one place.

This single point of access covers the ability to offer multiple payment rails (from cash and cheque to Direct Debit, mobile, bank-to-bank transfers and more), improve payment processing efficiencies and integrate into back-office systems.

Given the digital acceleration in payments and the ever-changing market requirements, it is the responsibility of the payments industry at large – from the regulators and software providers to the banks and consultants – to keep businesses informed on new initiatives and upcoming regulations.

Helping companies of all sizes to interpret digital trends and shifting needs will enable them to adapt and respond more quickly, putting them in a position to evolve the future direction of their payments, better meeting the needs of their customers while improving back-office efficiencies.

So, the ecosystem is developing fast – and there will be no return. As face-to-face business returns, digital payments will continue to be the norm. And as open banking gains further traction, changing how people do business and get paid will accelerate even faster and further. All of these, of course, move us closer to a genuinely cashless and potentially card-less society.

Without a doubt, we’re in the eye of a perfect storm where the pandemic, innovative technology and payment regulation are coming together to create and accelerate new opportunities. The time has come for all businesses to heed the words of Steve Jobs, where “innovation is the ability to see change as an opportunity – not a threat”.

A perfect storm: cash collection and the rise of digital paymentsAbout the author

Gareth Priest is chief platform officer at financial software firm Bottomline.

He previously served as vice president and general manager of online banking, trade and cash management at ACI Worldwide.

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