Why are we so afraid of payment innovation in America?

Across America today, businesses are missing out on the opportunity to bring about a simple but effective payments revolution within their organizations. With the world becoming increasingly digital, and outdated processes and technology across all business functions demanding a rethink, there’s no reason why businesses should continue to be afraid of payment innovation. 

The situation here in America, particularly for business-to-business payments, is long overdue transformation. Inefficient, time-consuming and costly methods of receiving payments are the default setting for most organizations. Therefore, businesses are well positioned to change the game and deliver significant value through the adoption of faster and cheaper methods of payment. 

The global landscape

Looking around the world, it’s clear that increased payment innovation delivers value for businesses and contributes to economic growth. Nations, such as the UK, France, India and Australia, are storming ahead with payment offerings and digital initiatives that are reducing friction, enabling businesses to be increasingly agile and deliver more seamless experiences for customers. It’s therefore worth examining the quick learnings and wins businesses can extract from these ecosystems and apply them to their own organizations. 

To understand how and where innovation can deliver value, without a costly and disruptive overhaul of payment processes, we should examine the current landscape of payments in America.

The push problem

In the U.S. today, B2B firms use a multitude of different methods to receive payments. According to research, 42% of all B2B payment transactions are made via check and cash, 41% via ACH, and 10.7% with cards. While these are all perfectly serviceable payment channels, the majority conform to a ‘push’ payment or buyer-initiated payment (BIP) model, in which payers have control over how and, critically, when they pay. 

Methods that are push-based are at the behest of the customer leading to human error, such as forgetting to process payments manually, or simple accounting errors that lead to non-payment or shortfalls, which then lead to lengthy and costly reconciliation. With the majority of payments collected late, and 40% of these collected between one and 30 days past the agreed date of settlement, there is a clear problem with customer-triggered payments. For long-term recurring payments, as might be expected for regular suppliers or monthly subscription services, these problems can quickly lead to large sums remaining outstanding. 

For organizations supplying industries exposed to market shocks and global black swan events, such as energy, travel and hospitality, such delays have the potential to turn into mission critical incidents. 

A cheaper, faster method:  the pull solution

According to a recent report, American companies are dealing with an upward trend in late payments and bad debts, with 55% of all B2B invoiced sales overdue and bad debts affecting an average 9% of all credit-based B2B sales. These outstanding funds could otherwise be directed toward activities that cut costs and generate revenue, such as improving services, or customer and talent acquisition at key inflection points along a business’s growth roadmap.

Based on proprietary GoCardless research from U.S. based small businesses, the underlying costs associated with payments really adds up. A typical small business will spend around one day per month reconciling and chasing late payments, and will have two full-time employees whose job it is to manage payments. This doesn't even take into account the administrative burden on the customer side. There is therefore a strong argument for increasing payment automation on both sides of all B2B transitions.  

The quickest way to enable automation is for merchants to move away from push-based payment processes and adopt a pull-based model. While this can be achieved with card-on-file, this method has high fees (3%) and high failure rates (7.9%). Pull-ACH, on the other hand, is faster and cheaper,  increases the reliability and success rates of payments, removes manual processing admin for the payer and payee and reduces the potential for errors to occur. 

Pull-ACH by GoCardless means funds will take two days to arrive, rather than up to a month. This is where businesses can leverage GoCardless’ 13 years of experience in innovating on top of payment systems like Pull-ACH. With the leading automated Pull-ACH offering in the market today, we help our customers get paid faster and cheaper by eliminating cards altogether, as well as minimizing the cumbersome methods outlined above.  

So, why are businesses so afraid of payment innovation in America? Ultimately, getting paid is critical to your business. As the saying goes, “if it ain’t broke, don’t fix it”, but it is broken. You’re paying far too much, and waiting far too long to receive your money. We’re not suggesting you ditch what you have today, simply add a new, better way to receive funds, and watch your bottom-line grow!

To find out more about how we can help you take the first step, get in touch today.