Written by: Ed Adshead-Grant, General Manager at Bottomline Technologies
The UK payments industry is undergoing a period of significant change and transformation. Driven by regulatory initiatives such as Open Banking and modernisation of global standards, those in the credit sector can expect innovations in collections that could open-up new opportunities.
We recently published our third annual UK Business Payments Barometer to track these changes and get under the skin on what’s high on the agenda for financial decision makers.
Late business payments: Duty to Report
When it comes to business payments, the introduction of the Duty to Report legislation over a year ago was designed to tackle the chronic late payment problem particularly impacting small businesses. This was set to be a wake-up call not only to large organisations, but to every business in the UK. Has this regulation been as effective as everyone had promised? Yes and no.
While some organisations have started to create an onus to ensure payments are made promptly to suppliers within agreed timescales, our 2018 UK Business Payments Barometer report has found that two in every five enterprises and corporates are deliberately delaying payment to suppliers to improve their own cashflow or to prioritise who they wish to pay when. This is concerning.
Latest trends indicate that companies may well be improving their processes to ensure they are paid sooner, but are simultaneously dragging their feet about paying suppliers, allowing them to hold onto money after payment is due. Over half of respondents for our UK Payments Barometer report sighted ‘good supplier relationship’ as their number one reason for paying an invoice on time, highlighting a vital change in the attitude towards late payments is needed. There’s still much to be done to encourage the cultural shift to ensure payments are made on time.
Under Duty to Report, slow payers can no longer hide behind size, process or complexity. With the payment technology available today and the new industry initiatives being introduced, there is simply no excuse for late payments.
Upcoming initiatives: Request to Pay
One innovative initiative the credit industry should look out for is the development of Request to Pay. This will see the introduction of sophisticated electronic invoicing into the payment system, making it easier to pay and get paid for goods and services, with more flexible payment options in terms of timings and partial payments.
Instead of a Direct Debit, where money is simply taken from a bank account on an agreed date, the Request to Pay mechanism will issue a request to the payee to settle the funds outstanding. They will have the option to pay in full immediately, pay later or even arrange a payment plan. Designed partially to accommodate the trend towards more flexible work and the rise in the “gig economy”, it offers greater flexibility to individuals and is likely to reduce the risk of non-payment or default.
Modernisation of ISO standards
In a related development, the adoption of ISO 20022 in the payments industry is gaining traction. This standard file format enables electronic payment messages to hold more information.
Traditionally, payment messages only had very basic payment details such as the name, routing information, amount and perhaps a short description. Under the chosen common standard, further information such as invoices, settlement instructions and reporting can be included and reconciled more easily. Augmenting this information reduces the inconvenience of printing and signing, as well as the risk of late payments resulting from disjointed information around a collection.
These are just a few examples where innovation in payments can create opportunities for the credit sector. With Open Banking building secure bridges between bank data and third-party applications, we can expect to see more ways to ease and enable greater flexibility in how payments are initiated and processed.
The credit sector should take note of these developments to understand how this can improve the way they collect, as well as how they can embrace and capitalise upon the shift towards flexibility.