Ad-Hoc payment account for 38% of SME sales
Search for “ad hoc” and the definition is simple: created as needed.
One-off payments therefore have a simple purpose. They’re created, as needed, frequently on an ad hoc basis, to satisfy, say, a refund or to adjust payroll – and often they don’t even have to go through billing channels. In some cases, one-time payments can be as simple as paying a vendor only a few payments in a given month.
To that end, said Drew Edwards, CEO of Ingo Money, in conversation with Karen Webster, ad hoc payments tend to be made by paper checks, but they are anything but effective. Paper checks take time to cut, are expensive, have to go through the mail, and can languish for days before they are deposited in the bank.
For small and medium-sized businesses (SMEs), one-off payments account for 38% of sales, according to a PYMNTS study. Of this amount, 30% of these payments are late and the majority of these late payments are over a month past due.
The problem lies with the big buyers, said Edwards, who noted that the ‘we’ll pay you by check or nothing’ credo works because of a confluence of friction – namely, it has been difficult to offer the choice of payment to suppliers. Checks are universally accepted, and changing such a ubiquitous payment method can be a challenge.
There is also a lack of supplier influence, as it is the small businesses that cut the grass or provide freelance services or may be on a project one day and be completed the next. Checks represent a path of least resistance, and providers have limited tools to close this gap in late payments.
At a high level, Edwards said, the practice may at first glance seem like “bullying.” It’s just part of the DNA of your accounting department to âslowly payâ everyone they can. “
In terms of mechanics, there may be a simple reason why checks are the default option, as SMBs get lost in the overhaul. Edwards noted that âwhen they’re not part of the regular flow,â there isn’t much effort to integrate these small businesses into the back-end processes of larger buyers, which would provide more consistent payments. and planned.
But, as Edwards noted, with the increase in Accounts Payable (AP) automation for more “regular” relationships – and with the increase in experiences and expectations online – the tide may be receding. (slowly) of the paper check. Engaging with suppliers on an individual basis – and on a transaction-to-transaction basis – costs time and money.
Pay for speed
With companies like Ingo, said Edwards, âthere’s real technology in place with a one-to-many payment solution, where a company can choose to say, ‘Hey, let’s get more efficient here. Let’s be more modern here. Let’s digitally engage with our suppliers and find out how they want to be paid and pay them. ‘â
And people will pay for the speed. The presence of platforms creates the opportunity for dialogues between buyers and suppliers, and even for discounts, he noted. This creates alignment with the struggling small business and the biggest buyer.
In a nutshell, said Edwards, “it’s an overhaul of the financial supply chain.”
Savvy buyers can actually turn ad hoc payments into a sort of revenue generator (although, as Edwards noted, there isn’t much elasticity at the small supplier level – they do need to. money).
âYou monetize the speed,â he told Webster. âThe method we can use to pay instantly is cheaper for them than the check. So they paid less, they have a happy vendor, and they paid with a cheaper method. “
Beyond the choice of getting paid early (for a discount), Edwards noted that digital platforms and payments also open the door to asking vendors how they want to be paid. Using technology that allows vendors to benefit from a self-enrollment process – and a streamlined transaction – means large businesses can âstaggerâ these ad hoc payments without human intervention. In the meantime, the “downtime” where businesses sit on accounts payable or an approval process, or when checks are mailed, is eliminated.
For now and for the future, the overhaul of financial services is focused within payment networks like Visa and Mastercard, and a range of FinTechs.
âThey go back and forth with the suppliers and think they’re going to work their way up the food chain,â Edwards said. âWe see that this plays out mainly in the automation of accounts payable and the [enterprise resource planning (ERP)] integration schemes.
This will lead to silos, much like today’s peer-to-peer (P2P) landscape. But the most effective movement is towards the network of networks (they are valuable but not yet ubiquitous) and platforms that allow recipients to choose where they want the money.
It’s important to separate the sender and how they want to pay from the recipient and how they want to get the money, as these can be two completely different decisions. The network effect can connect distant buyers, suppliers, and directories and make them all interoperable, and we’ll likely see critical mass over the next several years, especially as real-time payments gain popularity.
As Edwards told Webster, âThe beauty of using fast payments, instant payments, and digital experiences is that there is instant gratification. People come back for it.