POM: Fighting Late Payments By Easing Invoice Payments Friction

Suppliers and vendors may feel a lack of control when it comes to accounts receivable. Once an invoice is sent out, it may seem largely out of a vendor’s hands whether a customer pays on time, pays late — as is the case with so many invoices — or never at all.

In the U.S., 51 percent of organizations have had to declare outstanding invoices as uncollectible because a customer has declared bankruptcy. U.S. vendors have begun denying their overseas clients trade credit terms, Atradius research found, while separate data from The Hackett Group calculated $1.1 trillion tied up in unpaid invoices among the nation’s 1,000 largest companies.

Late invoice payments aren’t an issue isolated to the U.S., though. In Europe, regulators have taken measures to ease the hurt of late and unpaid invoices. In 2011, the European Commission (EC) introduced a new directive to combat late payments, citing that “thousands of small and medium-sized enterprises (SMEs) go bankrupt waiting for their invoices to be paid.” Late invoice payments cause lost jobs, stifle entrepreneurship and land heavy financial burdens on businesses of all sizes, the EC declared.

The problem persists, however, and now service providers are working to encourage businesses to be proactive in accounts receivable. While an insolvent or negligent customer cannot always be controlled, corporates can take measures to limit the threat of late invoice payments.

In a recent article penned for Forbes, Oxygenmat Founder and CEO Abdullahi Muhammed outlined several strategies to avoid late payments, including offering early payment discounts, setting late payment fees and requesting down payments. Broadly speaking, organizations must “make it easy to pay,” Muhammed stated.

“It’s in your best interest to eliminate all barriers to payment for your clients. Make it easy to pay, and they’ll feel a lot less put out about doing it,” he wrote. “Gone are the days of mailing checks for freelance services. Online payment is a must.”

Separate analysis from Vanguard Systems similarly emphasized ease-of-payment as a critical strategy for addressing late and unpaid invoices.

“The less hassle a client has to go through to pay you, the more likely it is that you’ll get paid quickly,” the company said in a February article.

Easing invoice payment friction is a critical component for companies today, according to Johannes Vermeire, co-founder and CEO of POM. The Belgium-based company recently raised more than $960,000 for its invoice payment solution.

According to POM, citing data from the European Payment Report 2015, one-third of businesses would be able to boost hiring activity if their invoices were paid on time. Separate research from the EC correlates on-time invoice payments with lower bankruptcy rates, Vermeire said, adding that consumer invoices are often paid late due to “forgetfulness or reluctance to the administrative hassle of paying invoices.” These figures make it all the more imperative for businesses to simplify the invoice payment process, for both consumers and business customers, as much as possible.

“We see that the focus on convenience is the most important factor to help undisputed invoices be paid on time,” Vermeire told PYMNTS in a recent interview. He noted that this is true for consumers, and invoices sent to professionals and microenterprises as well.

Payment rail certainly plays a role in how easily an invoice can be paid. Debit cards are the most common payment preference of buyers, he said, adding that “suppliers also prefer debit card payments, as the costs are low and payment guaranteed.” The cost of transaction is a significant pressure point for vendors, noted Vermeire, but accepting debit and even the more expensive credit card, as well as digital payment methods like PayPal, can be worth the cost.

“Although you might have to pay fees for accepting payment options such as credit cards or PayPal, accepting those payments means your customers will have less difficulty getting the proverbial check in the mail,” said Vanguard Systems in its report.

The customer’s payment tactic isn’t the only factor that organizations must pay attention to in an effort to ease invoice payment friction, though. Today, mobile platforms and QR codes present more opportunities to ease payer friction, especially for companies that still send paper invoices. For customers to be able to pay via URL in an email or by scanning a QR code on a paper invoice, that means companies do not necessarily have to overhaul their entire accounts receivable and invoicing processes to support more streamlined payment acceptance. According to Vermeire, QR codes are “a means to [convert] paper to electronic receivers.”

Companies must be able to embrace customers’ payment preferences, whether that be via debit card or mobile wallet. And though organizations can make a significant impact through even incremental adjustments to their accounts receivable, keeping up with customer payment preferences and needs isn’t easy. In POM’s home market of Belgium, Vermeire said the uptick of mobile payments is sluggish, and that poses a challenge to companies wishing to ease invoice payment friction.

“We see it as a combination of lack of trust and the already availability of well-functioning and low-cost bank applications, [which are] also mobile,” he noted.

POM targets the issue of late invoice payments by targeting the customer directly, linking them with mobile and digital payment-friendly solutions, even when suppliers aren’t onboarded to POM. For suppliers, there are measures — like support for electronic and mobile payments, and digital invoicing — that encourage customers to pay on time.