Future proof your payments strategy

In an unpredictable economy, the way you collect your payments is crucial. Outdated and manual processes behind the scenes could be costing you time, money and customers. Time spent managing payments can then take away from properly investing in new payments technology that’s going to keep up with customer preferences. 

A study by Forrester found that 80% of businesses wait up to 20 days past the due date to receive payments due to manual, outdated methods. That also has an impact on the manpower spent managing payments with most large businesses employing up to 20 FTE to manage payments. 

In the meantime, open banking awareness and adoption is growing. A recent study we conducted in conjunction with 11:FS found that 25% of businesses cite open banking payments as their most important payment method. By last December there were 12.09 million open banking users in the UK. 

The need for businesses to maximise operational efficiency whilst also developing new payments capabilities within their products is crucial. In this guide, we look at how businesses can achieve both whilst keeping the focus on getting the greatest ROI on their payments. 

Five key questions to ask yourself about your payments process

Every business is different, so the payment pains we’ve been discussing will be felt to varying degrees and at different times.

We recommend asking yourself these four questions to better understand where your payments process it at today and the areas you need to focus on. This will accelerate your solution search when you’re ready to start addressing your payment processes.

1. How long are you waiting to get paid?

80% of businesses wait up to 20 days past the due date to receive payments due to manual, outdated methods (Forrester).

Money languishing in receivables impacts cash flow and cash flow forecasting. Worse, as Days Sales Outstanding (DSO) creeps up, so too does your exposure to risk and bad debt. Ideally, your payment methods and processes should be automated to eliminate any frictions that delay the collection and clearing of funds. That way you can boost cash flow, improve forecasting and increase confidence in your operational plans.

2. What does your internal payments process look like?

Manual payment processes can take as much as 20+ full time employees to manage payments (Forrester).

Every finance team or business owner is familiar with the end-of-month grind to reconcile payments. In fact, more than 60% of payment decision-makers surveyed by Forrester said the most time-consuming areas are matching payments to invoices and reconciling reporting from different gateways/processors. By adopting solutions and processes that increase control, visibility and integration, you can put a stop to the cascading inefficiencies that eat up your precious time.

3. How many of your payments fail? 

Forester found that 11-15% of customer churn is due to payment failure (Forrester). 

Payment failure means you have revenue held up in unsuccessful payments, you’re spending time chasing customers and you can even lose customers if payment goes uncollected. Forester found that 11-15% of customer churn is due to payment failure.  In a world where it’s harder than ever to attract and retain customers, you don’t want something like payment failure to disrupt that relationship. 

4. What is your total cost of payments?

For two-thirds of B2B and B2C firms, the cost of recovery of failed payments is more than 11% of the average payment size (Forrester).

The cost of payments is more than the direct cost of accepting them, such as transaction fees (which can be as high as 4% for cards). There’s the cost of fraud, which is more common with some payment types than others, and the impact that has on revenue. There’s payment failure rate, which again differs by payment type. And then there are fringe costs such as headcount and other overheads associated with managing payments. All this adds up to your total cost of payments.

5. Do you have the in-house capabilities to build new payment capabilities? 

To develop new payment capabilities requires a lot of time and investment from internal dev teams. We all know the struggle of getting your priorities to the top of the list. You need to assess the current capacity of teams internally to help you get new payment innovation off the ground and working correctly. 

How to find a future proofed payments provider

68% of large businesses are planning to invest in their payments infrastructure over the next two years. Given the challenges that manual payments cause around costs, delays and visibility, and the rate of change in the payments landscape, it’s no wonder leaders are planning to overhaul their payment infrastructure. 

And their best bet? Working with a provider that can offer operational efficiency today whilst helping you to develop new payment capabilities as they arise. 

Here are four key considerations for firms looking to build a modern and efficient payments strategy. 

1. Connectivity and visibility

Apart from being a major time drain, manual payment processes are clearly a major cause of brain drain for businesses, too.

By instead working with a payments provider that’s automatically connected to the banks and integrated with your existing platforms, businesses could release much of this resource. 

Instead of sharing CSV files with the bank, chasing customers and reconciling accounts, the finance team would be more free to work on strategy and innovation. If they were also backed up by the increased visibility that would result from more integrated systems, imagine what these people who know your business so well could achieve in terms of process optimizations or performance insights.

2. Payment speed 

Waiting to receive funds impacts cash flow and cash flow forecasting, and ultimately limits scope for investment and growth.

Unfortunately it seems that almost every firm is suffering from slow incoming payments. Four out of five have indicated that it takes them more than a month to receive, while average DSO in the past 12 months is more than 20 days across their payment methods. 

As this key financial performance metric creeps higher it leaves businesses more exposed to risk and bad debt. So it’s vital to understand the typical payment timings of the providers you are talking to. Automating your payments removes both the friction and time spent managing payments. 

Businesses working with GoCardless have seen up to 47% faster payment timings overall compared with more manual payment methods. 

3. Payment recovery management

The way you handle payment failure matters. Manually retrying payments can cost you time and money. Often you are waiting on the banks to let you know when a payment has failed and then spending time trying to rectify the problem. 

When comparing the two methods of retrying payments, GoCardless found that only 38% of failed payments are successfully collected manually whereas up to 70% can be collected using payments intelligence and automated retries.

That matters because trying to uncover why a payment failed and re-attempting collection can be a cumbersome and costly endeavor — just ask the two-thirds of B2B and B2C firms who report that the cost of recovery is more than 11% of the average payment size (Forrester).

Understanding how a potential payments partner handles failed payments is important to minimising the impact of payment failures. 

4. Breadth of payments experience

With many providers on the market, it’s hard to drill down into who is right for your business and your customers.  The one thing that is important is to make sure that anyone you do work with has the experience and breadth of payment solutions to support your ever changing needs. 

As with anything, diversification is important, but it’s also important to keep complexity down. When you have a clear understanding of your payment needs, finding a solution that can help solve them with one contract, one API can help you to keep costs and management down. 

Future proof your payments with GoCardless

GoCardless helps over 100,000 companies around the world build better businesses with connected and efficient payment processes. 

The whole process, from collection, to managing payments with the bank and reconciling payments is automated and done for you.

GoCardless also offers open banking payments and data along with Direct Debit all in one payment flow.

GoCardless uses payment intelligence to retry any failed payments at the optimal time based on transaction history and to also spot fraudulent transactions before they begin. 

Companies working with GoCardless have seen: 

• 56% lower cost per transaction compared to cards (IDC)

• 59% less staff time to manage payments (IDC)

• As little 0.5% payment failure (GoCardless payment data)

• Up 47% faster payment timings (IDC)