Late payments, bad debts and inefficient payment systems are choking Australian businesses at a time when they can least afford it – highlighting the importance of mandatory maximum payment terms and account-to-account payments for streamlining cash flow.

The payments landscape has undergone a major upheaval in the past 18 months. Along with the challenges of COVID, businesses have faced the rise of new payment methods, the arrival of open banking frameworks, dramatic shifts in customers expectations and a slew of regulatory considerations. 

For businesses in Australia and New Zealand, adapting to these rapid changes has not come easily. Many are struggling to keep up with the rapid pace of change in the recurring payments landscape and have been forced to accelerate their payment transformation journeys.

At the same time, they're bogged down by administrative costs and are experiencing strong hits to revenue and profitability as a result of late and failed payments, according to the latest Forrester study into business payment strategies, commissioned by GoCardless.

Unsurprisingly, the financial strain felt by businesses as a direct result of the pandemic has had a flow-on effect, resulting in an increase in late and failed payments.

Businesses are hurting as a result, with the majority (52%) of ANZ payments decision makers dealing with payments more than 30 days overdue. Three quarters of respondents listed reducing their average day sales outstanding to be a high or critical priority over the next year.

Sometimes those outstanding payments are never to be seen, with 70% of respondents reporting that more than 10% of failed payments turned into bad debt over the last 12 months.

The impact on businesses is exacerbated by customer churn and costs associated with payment recovery. More than three quarters of those surveyed reported the cost of payment recovery is more than 10% of their average payment size.

Not only are slow payments and bad debts choking cash flow, they're also putting a strain on business resources and creating major inefficiencies which are hurting their bottom line.

More than three quarters (77%) of ANZ decision-makers are forced to employ more than 20 full-time staff just to manage payments and keep cash flowing through the business. This suggests that a high level of inefficiency is plaguing their approach to payments. 

While SaaS and recurring payments have been hailed as smart, sustainable business models, they introduce considerable inefficiencies when approached manually.

Manual processes, fragmented systems and technology silos place a considerable burden on workflows, drain on staff resources and strain on cash flows. This in turn drives up costs for recurring-revenue models.

Administrative costs have risen for 46% of payment decision makers over the last 12 months, with most reporting an increase in administrative costs of more than 10%. 

These challenges all create a significant drag on the Australian economy. They are hurting productivity, hampering business development and stifling innovation at a time when we should be looking to come back strong from the pandemic. 

Businesses in Australia, New Zealand and around the world have had a huge wake-up call. Innovation timelines have been accelerated and many decision-makers have realised the critical role that an effective payments strategy can play in improving customer retention, reducing costs and supporting new business development.

Respondents are confident that payments solutions will lead to improved outcomes for their businesses. In fact, 47% are currently expanding or upgrading recurring payment provider services or planning to invest in one in the next 12 months. Innovations such as account-to-account payments are designed to ensure the smooth flow of funds.

Late payments are costing businesses billions of dollars a year. The current economic conditions are amplifying the challenges and it’s now at a critical point. While technology initiatives like Open Banking can solve some of these issues, businesses desperately need support from regulators to finally nip the problem in the bud with the introduction of hardline changes.

The business community has called on the government to mandate maximum payment terms, as well as provide more support for investment into technology infrastructure to accelerate and streamline payment processes.

Investment in payment infrastructure is vital. Opportunities to scale, expand and bolster the bottom line lie in smarter systems and government policies designed to ensure that cash flow doesn't slow to a trickle – crippling businesses and dragging down our economy.