Digitised payments and the future of seamless trade

During the first quarter of 2020, hundreds of millions of employees across the world left their offices, not knowing when they would return. Phones rang unanswered and letters began to pile up in mailrooms as businesses raced to adapt to Covid-19.
Amid those envelopes lay unprocessed payments. Despite continuous decline, last year cheques still accounted for nearly 272 million payments in the UK alone. In the US that figure remains significantly higher, with cheques making up 42 per cent of all business transactions, according to the Association of Finance Professionals. Now, these funds were stuck in limbo, unable to be finalised by buyers or processed by suppliers in order to become vital working capital.
“There’s been resistance to reinventing the business payments system, because people would say if it isn’t broken, don’t fix it,” explains James Anderson, executive vice president of global commercial products at Mastercard. “Well, then the pandemic arrived, and it broke.”
For large corporations, the slow and arduous process of manually processing payments is just another inefficiency cost – albeit a significant one, with PWC estimating as much as 40 per cent of finance department’s time being spent on routine accounting tasks. To small businesses, however, it’s long been a question of survival.
“Around 50,000 businesses [in the UK] go under each year due to poor payment practices, and that has increased due to Covid,” says Mike Cherry, chairman of the Federation of Small Businesses. “Late payments are a huge cause of stress and anxiety for business owners. In too many cases, they cause firms to fail before they’ve even had a chance to get off the ground.”
It’s not only fledgling enterprises that are vulnerable. Amid the casualties of the last global recession, which saw the loss of over 2.5 million small businesses across the US and UK alone, was a Northern England-based family construction company that had been running for over 35 years. As co-owner Ann Long explained, “Harry Long Ltd.’s problem wasn’t a loss of customers.” Indeed, the 2008 recession had seen her and her husband taking on much larger clients. “The problem was that those clients were increasingly failing to pay on time.”
There will be similar stories from the Covid-19 recession, Cherry argues. But while changing corporate culture around late payments may be a long-term struggle, Anderson believes more immediate progress can be made on payment delays, simply by fixing the outdated business payments infrastructure.
“Business payments have lagged behind consumer payments,” Anderson says. “The challenge is the complexity. A single buyer could work with thousands of suppliers of a range of different sizes each using their own bank and each with their own preferences regarding terms and method of payment.”
Anderson’s solution is the Mastercard Track Business Payments Service – a central payment platform that allows suppliers to more easily share their payment terms with clients, while allowing buyers to make and manage payments digitally. It launched back in May 2020 for US card payments, and added account-to-account payment functionality in November, allowing businesses to exchange data with greater efficiency and facilitating payments across multiple payment rails.
Mastercard Track Business Payment Service helps businesses standardize and reconcile payments and will further speed up small businesses’ access to capital. This builds on Mastercard’s previous work to aid small entrepreneurs as part of a commitment to support 50 million small businesses in accessing the digital economy.
Small and medium businesses have historically been the first casualties of an economic recession but they can also be the engine of economic recovery – driving over two thirds of job creation in most developed countries. However, an engine can’t run without fuel and that fuel is cash flow.
“Preventing the closure of those 50,000 small businesses a year due to late payment could contribute as much as £2.5 billion to the UK economy,” Cherry estimates.
Anderson adds, “Small business, in a real sense, is big business – it has been the engine for the global economy and has the potential to power our recovery and growth”.

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