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With the pandemic forcing companies everywhere to re-engineer their business practices, payment technology is emerging as a vital building block of the new normal. Bottomline’s Jon Rushton, GM at Bottomline Payment Services looks at some of the issues.

Life was already challenging enough for the financial decision-makers leading the UK’s SMEs before COVID-19 struck. Issues including volatility in the trading environment, late payment, fraud, Brexit and regulatory change were all high on their lists of concerns.

Since the government closed down large swathes of the economy in March, the perceived threat of many of these factors has grown in significance.

Technology is more important than ever in enabling these businesses to overcome such challenges. This is a key finding of the fifth annual Bottomline Business Payments Barometer, which pinpoints the beliefs, sentiments and expectations of 800 finance professionals from across the UK’s payments industry.

For the small businesses that participated, easier access to technology was the most positive driver of change in their business environment, closely followed by the adoption of real-time payments (RTP) and mobile payments. All of these were also important to the mid-sized organisations that responded, although security was the single most significant driver of change for these businesses.

Advancing technology, and the ability to get the most out of it, is a key unifying factor – particularly in a time of crisis. For example, the most impactful interruptions to normality in the trading environment have been the cessation of almost all face-to-face contact in just about every sector bar retail, and the need to work from home. Technology alone has kept businesses running in these extraordinary times.

The impact of late payment

Technological advancements, such as RTP, also have enormous potential to help in the always contentious area of late payments. During our research for this year’s Payments Barometer, an astonishing 89% of decision-makers told us their businesses continue to pay suppliers late. Even though this figure is 3% down on last year, its sheer scale means late payment can have a catastrophic economic and human impact, particularly at times like these when small businesses can ill-afford delays.

As Dan Bellis of the Federation of Small Businesses told us in a roundtable session, “It is devastating for small businesses when they think that they have a working relationship with their larger business provider, that they have done the work, they have done their day job, as it were, and yet they are still waiting 200, 300 days in some circumstances or if they get paid at all with the current pandemic.”

This doesn’t seem right at a time when so many payment methods are available, not to mention additional factors like the Prompt Payment Code and Duty to Report legislation. We believe there is today no reason why small businesses should be placed at any additional risk from larger corporates hoarding cash reserves.

In fact, could this be the moment when large businesses – persuaded by the need to maintain continuity of supply – commit to creating a truly ethical supply chain management programme? By that, I mean one that fully supports the interests of every constituent member, not merely the few giants at the top of the chain.

Why nobody is innocent

It would be wrong to portray large organisations as villains here. Small businesses are far from guilt-free in this area – and their late-payment performance is getting worse (by a significant 19%). This is happening at a time when enterprise organisations and large businesses have delivered a 12% improvement over the previous year. Also, small companies are most guilty of late payment if a supplier doesn’t chase. That’s despite the fact that, along with medium-sized companies, they are the group that’s least hampered by inefficient accounts payable processes.

It is, however, encouraging that more than two-thirds of companies using RTP tell us it helps with cash flow management and can unlock cost savings. Maybe accelerated uptake will also stimulate accelerated settlement? Time will tell.

Facing up to fraud

Payment fraud is another area of grave concern for SMEs – and that’s hardly surprising. Small businesses participating in this year’s Barometer told us they lose, on average, £99,830 to payment fraud. Over the last 12 months, this loss is up by 14% on 2019.

This picture is a little more disheartening for mid-size companies: for them, average losses have gone up by £44,000 over the last year, a rise of 38% on 2019’s £119,034 to £164,000.

Equally disturbing is that close to half (47%) of our 800 survey respondents feel there is little or nothing they can do to recover these losses. Just 11% of small business decision-makers told us they successfully recovered more than half of their losses. But perhaps there is a lesson to be learned from big businesses, as 26% managed to recover 50% or more.

This is encouraging in our view, and proven solutions already used by larger organisations should be of interest to SMEs. For example, while smaller companies tend to use multi-factor authentication for bank-account validation and verification, larger businesses are stronger on automation and more likely to use behaviour-monitoring technologies, aimed at catching fraud mid-flight and before any funds leave the company’s bank account. In addition, they are considerably more likely to operate an automated supplier portal that only accepts invoices from accredited suppliers.

Regardless of the fraud measures taken, it was good to see that a significant majority (69%) of respondents from across all groups feel they could and should be doing more to prevent payment fraud. We look forward to seeing evidence that they are acting on this intention in future surveys – and firmly believe all companies should be investing in technology that helps identify potential fraud before a single penny is under threat.

The compliance conundrum

One area in which small companies, in particular, continue to flirt with risk is regulatory compliance. Only 8% of small business decision-makers rated compliance as a top priority, mainly due to a missing sense of urgency. This finding is hardly surprising, given we have seen delays in the launch dates of a host of initiatives, including Confirmation of Payee, Request to Pay and the New Payment Architecture (NPA).

It appears that small companies will embrace change only when they absolutely have to. We believe, though, that this is a risky approach to take. In general, awareness of terminology and understanding of the regulations seem to be poor, making it hard for them to judge what they can safely ignore and what they should be acting on now.

A significant focus for us is to ensure smaller companies are not caught short by the sudden need to comply, exposing themselves to potentially harsh penalties. More than that, it’s essential for every sized business to understand their payments processing needs and put in place appropriate technologies that will improve financial efficiency, accelerate payment and reduce the risk of fraud.

That’s our mission: to urge companies everywhere to go digital, embrace open banking and automate. In these COVID-affected times, this has never been more important.

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Terms of reference:

800 research respondents, of which 200 were small business and 200 were mid-sized corporates.

Small businesses: between 10 and 249 employee or turnover of less than £1,999,999

Mid-sized businesses: 250-999 employees or turnover between £2,000,000 and £124,999,999.

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