When you ask CFOs to identify the main drivers of business uncertainty, their responses often include economic conditions, supply chain disruptions, labor shortages, consumer behavior or even geopolitical factors — all of which are beyond their control. However, there exists a powerful tool that is becoming increasingly crucial for helping middle-market companies mitigate uncertainty: the method of payment and collection, particularly, instant payments. By harnessing this tool, CFOs can gain a significant advantage. Notably, PYMNTS Intelligence data confirms that companies utilizing faster payments have healthier balance sheets and experience lower levels of uncertainty.
Fighting Uncertainty With a Tool Hidden in Plain Sight
Many CFOs rightly emphasize external factors like economic conditions and consumer behavior as sources of business uncertainty. However, it is also important to recognize that some forms of business uncertainty stem from within a company. Specifically, an imbalance between accounts receivable (AR) and accounts payable (AP) can disrupt cash flow. Gaps between the times when companies receive payments and the times when they need to make payments to their suppliers create uncertainty. Without a clear picture of their cash flow, companies struggle to make confident purchasing decisions, impacting their overall planning and stability.
The inability to pay suppliers promptly because of delayed payments from customers may lead to missed opportunities such as discounts and more favorable deals. Additionally, some suppliers might choose to sell their inventory to buyers who can pay faster. Insufficient cash flow can also result in overdue payments, which can damage companies’ relationships with their suppliers and limit access to favorable credit rates.
To avoid these situations, CFOs are increasingly focusing on real-time payments as a solution. By tracking payments in real time, CFOs and their teams gain a better understanding of cash flow dynamics and can use forecasting tools to determine their cash position at any given moment.
It is not surprising that 52% of the heads of payments surveyed by PYMNTS Intelligence operating with low levels of uncertainty used real-time payments in the past year. This compares to just 39% of those with high levels of uncertainty utilizing the same method. Conversely, paper checks are still used by 33% of heads of payments operating with high levels of uncertainty, more than twice the percentage of those operating with low levels of uncertainty. Thus, PYMNTS Intelligence data suggests that there is a correlation between the payment method used and the degree of uncertainty within a company.
Real-Time Payments Create Healthier Balance Sheets
CFOs who favor real-time payments or any other faster payment methods within their organizations also tend to have healthier balance sheets due to several key advantages associated with these approaches.
First, immediate access to funds enhances cash flow management, allowing businesses to meet their financial obligations on time and reducing their risk of cash shortfalls. The convenience of 24/7 year-round availability of instant payment options also streamlines operations, accelerating transactions and enabling AP and AR teams to act faster and more efficiently.
Consider small to mid-sized businesses (SMBs) in the transportation sector, for example. These firms often have significant payroll, vehicle and fuel costs that can tie up large amounts of capital if they rely on slow-processing checks, automated clearing house (ACH) payments and other non-instant methods. With instant payments, money moves faster, in turn expediting the movement of goods.
Moreover, instant payments reduce the risks associated with delayed transactions, such as bounced checks or late payments. This reliability contributes to a more stable financial position for businesses.
As a result, 77% of transportation SMBs that primarily utilize instant payments report very healthy balance sheets, highlighting the positive impact of this payment method on their overall financial health. Furthermore, both senders and receivers of instant payments in the transportation sector show a high level of satisfaction, ranging from 83% to 100%, with various instant methods, including account-to-account transfer, push to debit card, PayPal and Venmo.
Faster Payments: For Cash Management and Growth
Payments can make or break a business. Accurate forecasting of incoming and outgoing funds positions a company to make strategic decisions effectively. Without it, firms may struggle to pay suppliers and employees, potentially leading to serious financial consequences.
PYMNTS Intelligence data shows that 88% of heads of payments who use faster payments such as same-day ACH and real-time payments say these methods are enabling growth within their organizations. This contrasts sharply with the impact of paper checks: 33% of heads of payments who rely on paper checks say this method hinders growth.
The correlation between faster payments and growth is evident to many executives surveyed by PYMNTS Intelligence. Effective cash management and accurate forecasting allow companies to increase orders when needed, strengthen relationships with suppliers by paying on time, and reduce internal costs in AR and AP departments. However, when payment processes encounter friction, the opposite effect can occur. In the past 12 months, heads of payments identified the top three challenges that negatively impacted growth: (1) costs, such as interchange fees (27%); (2) process inefficiencies, including bottlenecks in obtaining approvals (25%); and (3) supplier-related difficulties, such as negotiating favorable terms (17%). Additionally, heads of payments noted mismatches between AR and AP leading to cash flow gaps as a significant concern (10%).
Despite the clear advantages, not all companies have adopted instant payments. Roughly 48% of heads of payments used real-time payments in the last year to pay suppliers. However, as noted earlier, this share is higher among companies experiencing lower levels of uncertainty and maintaining healthier balance sheets. Consequently, instant payments will likely become an essential in every CFO’s toolbox.
An Insider on Orchestrating Payments to Minimize Uncertainty
According to Thomas Randklev of payment orchestration leader CellPoint Digital, the choice of payment method is indeed a crucial tool for CFOs in reducing business uncertainty.
“We’ve observed that businesses leveraging efficient payment methods can better manage their cash flow,” he told PYMNTS Intelligence. “This enhanced control over cash flow directly translates to reduced business uncertainty.”
Moreover, he said, a payment orchestration platform can be a game-changer for businesses dealing with economic uncertainty caused by uneven payment inflows and outflows. By consolidating various payment methods into a single platform, businesses gain a comprehensive view of their payment ecosystem. This visibility allows for improved cash flow forecasting and management, enabling companies to make informed financial decisions. In addition, an orchestration platform enables businesses to adapt quickly to changing market conditions by allowing them to add or switch payment methods and providers as needed. This agility is crucial during uncertain economic times.
“Through intelligent routing and automated reconciliation, a payment orchestration platform can help businesses optimize their payment flows, reducing transaction costs and improving settlement times,” Randklev explained. “By distributing transactions across multiple providers, businesses can also mitigate the risk of payment failures and reduce their dependency on a single provider.”
Randklev confirmed that incorporating instant payments in payment orchestration is one of the most impactful strategies his company sees.
“We recommend integrating real-time payment capabilities into the orchestration strategy,” he asserted. “Instant payments help close gaps in cash flow, leading to better forecasting and stronger balance sheets.”
Finally, Randklev noted, leveraging data analytics available through these platforms can provide insights into payment patterns and customer behavior, which can inform strategic decisions and improve forecasting accuracy. Ultimately, a robust payment orchestration strategy not only reduces uncertainty but also fosters growth by enabling businesses to navigate the complexities of the financial landscape more effectively.
