• Late Payments Culture and Its Impact on Global B2B Commerce  

Late Payments Culture and Its Impact on Global B2B Commerce

Who says wisdom comes with age? Christian Laang was still a young man in Denmark at the tender age of 19 when he got the idea for Tradeshift. He was rising in the ranks and becoming the youngest division head in the history of the Danish government at the time. In his role, he was tasked with the unenviable responsibility of keeping track of the government’s suppliers – a list in excess of 25,000 – who were sending as many as 15 million invoices a year.

Since the vast majority of these invoices were paper-based and needed to be posted to buyers (a still common practice in a lot of companies around the world), the process of tracking and managing payments was, needless to say, extremely challenging.

So what did Laang do? Well, he set out to create an electronic invoicing platform to solve his problem. The software allowed companies to send and receive invoices and track down payments immediately, and by 2009 over 95% of the Danish government’s suppliers were using the cloud-based system. Clearly Christian Laang was onto something important.

Entrepreneurial Doom and Gloom
The concept of automating invoices goes beyond the easing of administrative processes. Indeed, Laang was tapping into something bigger. It was about bringing transparency and speed to payments and reducing risk in the supply chain.

Entrepreneurs the world over are always accepting the risk that the products in which they invest tremendous financial and sweat equity could very well fail, leaving them out of business and in a heap of debt. What is a much stranger and crueler reality, however, is that when the entrepreneur’s product is actually successful and yet they still find themselves running up significant debt, or even on their way to bankruptcy. Why is this? Who is the villain in this carnival of financial doom?

Well, the sneaky culprit is the persistent and crippling culture of late payments. Unfortunately, paying late is still considered “the norm” within supply chains. It is just another strategy for buyers to manage cash and increase DPO metrics. Sadly, the traditional 30-, 60-, or sometimes 90-day corporate payment cycle leaves entrepreneurs, start-ups, and other SMEs in a serious cash flow crunch, with few options to get out of it. What’s worse is that 30% or more of the time, these payment deadlines are missed as well, or invoices are never paid at all. This can result in bankruptcy for the supplier, or at best, a very difficult position.

$2 Trillion in Late Payments
This is a big problem on a global scale. According to a report in Insurance News Net, there is currently $2 trillion locked up in late payments. Buyers are in the habit of delaying payments for as long as possible so that they retain more capital in order to be more readily equipped to cope with more pressing spending needs – R&D, dividend pay-outs, what have you. Our less well-heeled suppliers in the meantime often have to take out bank loans to cope (if they even can).

Save $30 Million A Year
Talking to Business Insider, Laang said: “It’s true that big companies can save a lot of money by delaying payments, but they’re also hurting themselves because suppliers could go out of business while waiting for payment. Companies could save up to $30 million a year easily, just by paying earlier.”

The “Aha!” moment that Laang had while with the Danish government is now being extended far beyond the invoice, and B2B Dynamic Payments companies like Traxpay are filling in the rest of the picture for the supply chain. Going beyond the invoice means Traxpay brings various services that aim to tackle this late-payment culture head-on.

Dynamic Discounting is an example, where companies who agree to early payments are offered discounts. Another is Supply Chain Financing (SCF), where a third-party bank pays the supplier immediately, and the buyer pays back the bank instead (at a low interest rate) at a later date. This means that the supplier isn’t left floundering as the damsel in distress, and the buyer still gets to delay the payment to satisfy the sacred DPO metric. Traxpay, and its ecosystem partners, provide the solution the world of B2B commerce has been waiting for – where trading partners who can now both accelerate growth and expand business without risk. The future of B2B commerce is here.

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