The much dreaded coronavirus has not only affected our lungs and peace of mind but has also an adverse impact on B2B payment behavior. The latest report by Atradius, has some gloomy statistics to show in the U.S., Mexico and Canada region. It reveals that 43 percent of invoices across the U.S, Mexico and Canada, stand unpaid way past their due date. The businesses in the US have shown a marked increase of 72% in payment defaults on an yearly basis.
Chief Market Officer Andreas Tesch saying that, “the dramatic increase in overdue payments and the undeniable indications that the region has entered recession.”
However, despite the not-so-rosy statistics there is still a silver lining to be found in the grey clouds! In an effort to support its suppliers, the firm Bestseller, has promised to clear vendor dues with immediate effect until October, to sustain their cash flow.
COVID-19 has affected consumer behavior globally, with WFH becoming the norm and digital payments consequently seeing an unprecedented rise. As slowly the wold limps back to normal, things seemed to have changed forever,
Financial institutions have realized that just because consumers are allowed to visit branches, doesn’t mean that they will!
The findings of a survey conducted over 1000 American citizens, done by FIS between 3-5 April, endorses the belief that the pandemic has moulded digital transformation of banking, payments and commerce. This supports the consumer and supplier payment behavior in a post COVID-19 world.
The research threw up the following interesting facts;
- 31% of respondents will use online or mobile banking more in the future.
- 45% of consumers have used a mobile wallet payment platform in the past 30 days.
- There will be a measurable shift away from cash and checks.
According to Mladen Vladic, General Manager, Loyalty, FIS, “The impact of COVID-19 has rapidly accelerated trends that we have been seeing for years in terms of banking and digital payments. Once consumers begin using convenient new digital services, few tend to go back to their old habits, so we expect this to be the new normal going forward.”
ACI Worldwide and Global Data collaborated and launched Prime Time for Real-Time, a global report tracking real-time payments volumes across 30 global markets. As per the findings of the research, more than half a trillion real-time payments transactions will be processed over the next five years.
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The current situation is expected to quicken the growth of real-time and new digital payment services. There is a huge shift from the traditional method of paying through cash or cheques to transacting digitally, without WHO having declared cash as a potential carrier of the virus.
How will the pandemic affect payments economics?
The answer to the above question is the sum of a complex interplay between various parameters such as interest-rate landscape, economic activity, associated liquidity patterns, etc. Let’s compare the COVID-19 impact with the 2008-2009 recession.
Under the scenario of a two-three months economic lockdown in Europe and the United States, global GDP in 2020 is expected to decline around 1.5% (Source: Mckinsey.com).
Finding and sustaining the next normal
In the presently unprecedented conditions, it becomes imperative not only for the payments ecosystem but also for the health of the economy, to develop payments solutions that will ensure relaunch of the economy.
1. Encourage digital-wallet solutions beyond payments
To fix the damage and encourage recovery, one needs to enhance wallet features that go beyond payment transactions. They can be made to offer digital IDs, transaction, monitoring and reporting. Firms and suppliers that provide doable options for integrated and contactless payments, to both customers and merchants, will gain a distinctive edge over competitors.
2. Modify bank payments operating models
Banks are also slowly readjusting to the new normal. In the post pandemic changed scenario, banks will have to reflect on how to organize themselves to meet the changed requirements.
Payments, as a service business model are likely to experience a boost, where they can provide relief for reduced IT budgets.
3. Ensure touchless payments
The fear of contact with infected surfaces, has given a boost to the use of contactless payments such as, card and mobile wallet based payment options.
4. Choose omnichannel payments solutions to further omnichannel commerce
Omnichannel commerce refers to conducting a multichannel approach to sales that focus on fostering a seamless customer experience irrespective of where the client is shopping from, whether online or from a physical store. In most countries, the rapid build-out of omnichannel capabilities, will provide for smooth payments transactions in any environment, whether digital or physical.
5. Give universal access
The lack of necessary new technologies, and digital tools, disproportionately affects unbanked citizens. It is the right time to invest in technological setups where all merchants, suppliers and consumers will access and benefit from the use of futuristic tools.
6. Stabilize digital currencies
With dominoes like collapse in value and continued erosion of trust, digital currencies have failed to deliver on their promise of a universal payments solution in dire times. The pandemic has reinforced the importance of governments in maintaining a reliable global financial system.
Impact on supplier payments according to McKinsey and Company
According to the findings of the research conducted by McKinsey and Company;
There has been a maximum payment-volume decline in airlines, electronics and durables, hospitality and tourism, luxury retail, hotels, restaurants, catering and events.
Refund transactions are expected to increase in airlines, and in the hospitality and tourism industry.
In view of the current pandemic situation, there has been a triple digit growth in remote ordering, non travel ecommerce, and low volume contactless payments.
There has also been an undeniable, supply-side uncertainty, factory closures, and trade barriers affecting B2B cross border flows.
Classic point of sale (POS) payments have experienced a 30-40% drop in the short term.
Final Thoughts
To sum up, the pandemic has undoubtedly exerted a seemingly indelible impact on the world economy in general and on seller payment behaviour in particular. With the above in depth discussion we endeavored to analyze the same impartially.
Recurring Payments Vs Recurring Invoices
| Recurring Payments | Recurring Invoices |
|---|---|
| Recurring payments charge the customer’s credit card account or debit card account on a predetermined schedule for the same amount as preapproved. | Send an invoice to your customer on a regular basis. The client receives the invoice but, money is not paid unless the customer approves. |
| A business that takes prepayment of money and sells a monthly subscription service and product. Subscription services are excellent examples of this. | A company that provides fixed services with billable hours is an excellent choice for recurring billing. For example law firms and consulting agencies. |
Pros and Cons of Recurring Invoices
| Pros | Cons |
|---|---|
 You eliminate the possibility of human error by automating the billing process. If you use a recurring invoice, you will not be concerned about forgetting to charge your customers for the things they ordered. |
 You must exercise caution while recurring billing to prevent issuing inaccurate pricing. This also holds for price changes that could take place right once an invoice is created. |
|
If you provide your customers with the option for recurring billing, they are more likely to buy products regularly. |
It could be difficult to cope with recurring invoices if a transaction fails for any reason. |
| Net 45 | Invoice is due in full within 45 days with no early payment discount offered |
| 2/10 net 45 terms | 2% discount if you pay within 10 days; otherwise full payment of the invoice is due in 45 days |
| 1/15 net 45 terms | 1% discount if you pay within 15 days; otherwise full payment of the invoice is due in 45 days |
| 1/10 net 45 terms | 1% discount if you pay within 10 days; otherwise full payment of the invoice is due in 45 days |
| 1/7 net 45 terms | 1% discount if you pay within 7 days; otherwise full payment of the invoice is due in 45 days |
| Category | Net Method vs. Gross Method | Explanation |
|---|---|---|
| Calculation Approach | - Applies tax credits first; reduces taxable income before computing tax liability. | - Doesn't apply tax credits; computes taxable income without considering tax credits. |
| Tax Credit Eligibility | - Allows for greater likelihood of tax credit eligibility due to reduced taxable income. | - Limits tax credit eligibility because taxable income hasn't been reduced yet. |
| Itemized Deduction Requirement | - Lowers threshold requirement for itemizing deductions due to decreased taxable income. | - Raises threshold requirement for itemizing deductions due to higher taxable income. |
| Advantages | - Leads to lower taxable income and increases chances of meeting qualifications for other tax benefits. | - Results in higher taxable income compared to net method. |
| Disadvantages | - May miss opportunity to reduce tax burden if taxpayer doesn't itemize deductions or take advantage of tax credits. | - Increases taxable income and may result in higher overall tax bill. |
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