Getting paid on time is essential for businesses of all sizes to maintain a positive cash flow. Even so, businesses continue to struggle to collect payments in a timely manner.
In fact, a Forrester survey of over 700 payment decision makers found that, for most businesses, it takes an average of 20 to 30 days to collect a recurring payment once it becomes a receivable. Slow payment collection can have a serious impact on business viability and cash flow; it is a problem that many businesses cannot afford to ignore.
Recognizing how important it is for businesses to receive payments on time, GoCardless recently released it’s 2021 Global Payment Timings Index. The report, aptly named “How long does it take to get paid?” offers a slew of research findings that businesses can use to understand and improve their payment timings.
Slow payment timings slow business progress
Despite facing slightly different roadblocks, the ability to optimize payment collection is crucial to the bottom line of small and large organizations alike.
For small businesses, cash flow is critical for day-to-day operations and functions. For medium and large enterprise companies, cash flow frees up funds that business owners can use to foster business growth and investment plans. Waiting on money to be collected from customers limits growth opportunities and prevents daily flows from functioning as they should.
Prior to the pandemic, businesses were making some progress in reducing the time it takes to get paid. More specifically, large businesses began to see gradual improvement in their average payment timings in the two years leading up to 2020. However, the emergence of COVID-19 reversed this progress, increasing large business payment timing from an average of 36.4 days to 37.4 days. On top of that, one in seven invoices (14.9%) is now being paid later than 60 days, which is an 8% increase since 2019.
If businesses focus their efforts on reducing payment times, some of the negative impact from the pandemic can be mitigated. Faster payments have the power to unlock massive amounts of revenue, improve cash flow, and make business operations smoother.
Account-to-account payments are timelier than physical payment methods
The payment method used is one of the major factors that determines how long it takes for businesses to collect payments. According to GoCardless, payment methods fall into two main categories: account-to-account and non account-to-account payments.
Account-to-account payments (e.g., ACH debit and bank transfers) move money automatically between accounts. Account-to-account payments can be push-based payments, which rely on customers to send money to businesses, or pull-based payments, which give businesses the power to request a payment from a customer. Non account-to-account payments rely on third-party mechanisms such as cards or digital wallets.
Bank transfers and checks stand out as particularly sluggish payment methods, with bank transfers taking an average of 19.3 days to settle and checks taking an average of 22.1 days.
By using GoCardless, businesses can dramatically reduce the time it takes to receive payments—businesses using GoCardless wait an average (globally) of just 3.6 days to receive payments. When collecting one-off payments with Instant Bank Pay, payment confirmation is instant and funds can land in a business’ bank account in less than one day.
By optimizing payment time, businesses benefit from a healthier cash flow and revenue stream, lower credit risks, and the freedom to invest in future growth. In fact, reducing the average payment wait time from 25 days to 3.6 days can reduce revenue stuck in receivables by 86% in a single year.
Learn more about how your business can improve payment timings
GoCardless’ 24-page Global Payment Timings Index offers substantially more insight into the ongoing challenge businesses are facing when it comes to collecting payments. The overarching takeaway is clear: businesses of all sizes must optimize payment timing if they want to improve their cash flow. By choosing not to address the problem, they are leaving money on the table.
In reading the report you will learn about:
- The 8 factors to consider when collecting payments
- How your business compares to industry payment timing benchmarks
- How much revenue slow payment timings could be costing you
- Practical solutions to optimize the time it takes to get paid
Fill out the form below to unlock additional insight from the complimentary GoCardless 2021 Global Payment Timings Index, “How long does it take to get paid?”