Many businesses intentionally delay payments, slowing down the economy, according to MasterCard and Basware, which see an opportunity to clear out the congestion.
The companies have launched Basware Pay, which connects buyers' and suppliers' invoices through Basware's open business to business network, an ecosystem that covers more than 100 countries and 60 million yearly transactions. MasterCard and Basware have previously collaborated on products designed to take paper out of business payments.
"It's a big deal that the ambiguity of the 'check is in the mail' phenomenon can go away," said Hany Fam, president of MasterCard Enterprise Partnerships.
Suppliers' invoices are sent through Basware's network, approved by the buyer, and are made available for payment through a virtual MasterCard account number. That process is designed to allow more flexibility and visibility; buyers can negotiate payment terms with suppliers rather than hold onto bills while waiting for their own cash position to improve.
"The holy grail here is to hand-pick invoice items to negotiate terms. Today, the invoice items are often bundled together," Fam said.
The partnership allows buyers and suppliers to forge agreements for individual purchases, rather than aggregating a number of transactions to save on manual labor. A payment can cost between $50 to $100 to process when reconciliation and paperwork are taken into consideration, Fam said.
"It's more efficient to have data that is sent from a supplier's IT system directly to the buyer's IT system," said Esa Tihila, CEO of Basware.
The companies also hope to automate more functions used for business treasury management. This is a goal shared by other companies that offer technology to automate business to business payments, such as Bill.com and Nacha, which oversees the automated clearing house network.
While there are a number of companies and software programs that allow businesses to send bills or a check electronically, the payments are still processed manually most of the time, Fam said.
Basware and MasterCard on Sept. 3 also released market research based on interviews with more than 1,000 business executives with experience in accounts payable and receivable to support their new product.
While 88% of the executives surveyed agreed suppliers should be paid promptly, 57% admitted to actively delaying payments during the past 12 months. Also 74% of executives said late payment is a "fact of business life" and will always happendespite 90% also saying payment delays have wider repercussions for businesses, such as hindering payroll or reducing investment. And 67% said they have used payment terms as a strategic level to help manage cash flow.
In other findings, about 48% of businesses surveyed reported having more cash in the bank compared to a year ago, with 11% in a weaker cash position. And 69% hope to generate value from this existing cash by investment or other means, while 66% say they are experiencing more downward price pressure than three years ago.
"The late payment is being used as a way to manage cash flow in an uncertain market," Fam said, adding businesses are delaying payments to their own suppliers because of a lack of visibility into accounts receivable, which are often delayed for the same reasons.
That creates a cycle of late business-to-business payments, Fam said.
About 75% of businesses have more than 50 suppliers, and 66% send and receive more than 100 invoices per month, creating a substantial backup if payments are intentionally delayed, Tihila said, adding that while some "hoarding" is expected due to business uncertainties, it also reflects inefficiency. There's also the potential for price pressures.
"To the extent that we can, we're hoping to use this automation to encourage a greater amount of transparency," Fam said.