Cashflow concerns drive 2022 Payments Barometer key findings

Ex-GE CEO Jack Welch once wrote: “If I had to run a company on three measures, those measures would be customer satisfaction, employee satisfaction, and cashflow.”

Well said, in my opinion. Because when you get right down to it, business payments are about the money that comes in and the money that goes out. Your company pays and gets paid, or it’s not a business – it’s a hobby.

It was with this basic thought in mind that I read and analyzed the most recent iteration of Bottomline’s Business Payments Barometer report. Since 2016 we’ve taken the pulse of key finance leaders at companies in Great Britain (GB) and this year we’ve added the United States (US) for the first time, gathering 800 responses per country. The result is a fascinating snapshot of the current state of business payments in both countries as well as a look into the issues that will define the next few years. I knew that cashflow would be part of that snapshot. But I was surprised by how problematic this most basic issue is for many businesses. Cash management and cash forecasting could not be more important in a volatile economy.

I’ll get into some more key findings later in this piece. For now, let’s stick with the cashflow issue. Both countries reported a need to get cash in the door as quickly as possible. Regardless of size, around 73% of all US companies surveyed say that receiving money quickly has never been more important. This would seem to play right into the strength of payments modernization technology from real-time payments to same-day ACH. But as you’ll see, the adoption of these technologies needs to be accelerated.

As it did last year, GB companies called out speedy cash collection (68% in 2021 and 69% in 2022). That’s roughly even with the US. The differences lie in small and midsized businesses. Both hit the 72% mark in the US, but came in at 67% (small) and 65% (medium) respectively in GB. The operative word here is “speedy.” While inflation and recovery from the pandemic are primary causes of cashflow issues, payment terms can also influence cashflow. When you consider that 70% of GB businesses expressed a willingness to re-negotiate payment terms to manage cashflow (up from 64% in 2021) it highlights that cashflow is not a simple balancing act nor does mastering it have a silver bullet. A combination of automation and the human touch should be considered.

The Forecasting Problem

Even trickier is cashflow forecasting. Sixty-four percent of all companies (both US and GB) said cashflow forecasts are seldom accurate, with large companies indexing higher (68%). The devil can be seen in the details. 32% of companies in the US still rely, in part, on Excel spreadsheets to manage their cash. Only 33% use an automated treasury management system. 53% use off-the-shelf cashflow management software, which ranges in its ability to automate and forecast.

Regardless of business size, automation cannot be stressed enough. With a third of all companies bringing manual processes into play, it will inevitably lead to weaker forecasting, not to mention a lack of visibility into the true cash position.

Turning to GB, cashflow management showed up as a glitch (48% in 2021) that became worse in 2022 (54%) as businesses bemoaned the lack of accuracy. Here’s the kicker: It’s a much bigger obstacle for large companies (64%) than it is for small companies (46%). Both numbers are entirely too high for an economy that’s on colt’s legs due to the Ukraine crisis, Brexit, inflation, and the remains of a pandemic. Some companies in GB still use manual tools to help manage their cashflow (29%) with a shocking number of enterprises (25%) still using Excel. Only 27% use an automated treasury management system, and 46% use off-the-shelf cashflow management software.

The Real-Time Picture

One potential fix for cashflow management issues could lie in the speed and data-rich features of real-time (or instant in UK) payments. And here we find a tale of two countries, both influenced by business size. Example: 68% of all mid-sized companies in the US say they’ve already adopted real-time compared to 48% of small businesses. Focusing on GB, 53% of companies said they had adopted real-time payments. That dropped in 2020 and 2021, but sprung back to 48% in 2022. Differences in the size of the company also affected real-time in GB. Example: 41% of all mid-sized companies say they plan to adopt real-time vs. 27% of small businesses and 49% for enterprises.

We expect several factors to continue real-time’s momentum, even though it's been temporarily slowed in GB:

• Entrance of FedNow into the market and its power to raise awareness among consumers
• Continued use case expansion and data-driven power of ISO 20022
• Adaptability: Real-time payments rails offer important competitive elements for companies that trade across borders, pay disbursements, or adopt on-demand payroll
• Potential regulation of instant payments in the EU, which could drive its use in GB to maintain payment compatibility.
• Cross-border adaptability: Real-time payments rails are important competitive elements for companies that trade across borders, pay disbursements or adopt on-demand payroll

Drivers of change and other findings

The report is packed with other important issues, including both countries’ take on the drivers of change that affected this year’s results and a look at the factors that will influence the next three years. Subsequent posts will cover the move to the cloud and different fraud threats. Among the other key findings that caught my attention:

• Open Banking is the seventh-ranked driver of change in both countries. Open banking will become more important as the year progresses. Open banking is about the secure access to financial data and unlike UK, regulations from the US are not on the near horizon. But open banking will need to catch up in the US as UK and EU gallop ahead. The customer owns the data. That’s the takeaway when it comes to open banking and the US needs to make that conceptual leap.
• Cross-border (international) payments contain a ticking time bomb. Fifty-nine percent of all US companies pay or get paid through international payments. That’s a good number and quantification of this nature is hard to find in other surveys. The time bomb is in the combined percentage of companies (16%) who intend to stop international payments either because they lead to late payments (42%) or because they’re difficult to track (40%). This dovetails nicely into positioning real-time rails, SWIFT gpi, ISO 20022, and other alternatives to improve on those obstacles. Translation: Companies need a single solution provider to manage the technology and data needed for cross-border payments.
• Regulatory and compliance issues: One driver of change in GB didn’t show up in the US. Regulations and compliance came in at (6) in GB preceded by security and fraud (5) and as stated, never made it to the top 12 drivers for the US. A big reason for this discrepancy lies in the different market orientations of the two economies. It might also refer to regulations from Brexit. The fact remains that GB companies have had to make major changes to their marketing models due to Open Banking / PSD2, and this has put them on high alert for other regulations. Among them: ISO 20022 deadlines, SWIFT cloud deadlines, open banking regulations and fraud prevention measures like CoP. This difference could be extremely telling in how compliance efforts proceed in each country.

I urge you to dive into the Barometer and draw your own conclusions. Some issues may be more important for your company than others, but if cashflow management and forecasting aren’t at the top of the agenda, you should be congratulated for your efficiency or warned about the future.