Businesses Struggle When Faced With Pay Cuts During The Pandemic: Study

There are seemed to be clear connections between failed payments and negative business impacts such as bad debt, churn and customer dissatisfaction

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Around 96 per cent of businesses have had outstanding payments for over 10 days over the last year, according to a new Forrester Consulting study conducted by a fintech firm GoCardless.


The study, Rethink Your Payment Strategy To Save Your Customers And Bottom Line, on Wednesday said to have examined how companies can use recurring payments2 solutions to boost their payments strategy, shorten their days sales outstanding (DSO), and protect their bottom line.

Forrester in the study surveyed 700 payment decision-makers in organizations that serve a mix of businesses and consumers, or business customers only. The results highlight the extent to which lengthy DSOs and failed payments can impact customer churn and bad debt.

The study said to have found that having a high DSO is a key operational challenge for many businesses. While only 4 per cent of businesses have a DSO of less than 10 days, the research shows four out of five Australian businesses have wait times of 20-30 days to receive payments.

In addition to this, almost half of about 47 per cent of businesses say that the time taken to collect their accounts receivables has increased in the last 12 months this demonstrates the struggle for many businesses to get paid in the current challenging environment of COVID-19, according to a statement released in the report.

Another key finding is that failed payments continue to impact the customer mix. In Australia, on average, failed payments result in churn 11-15 per cent of the time.

The Forrester Consulting study found that 50 per cent of firms experienced payment failures for 7 per cent or more of their payments in the last 12 months, and two in three businesses surveyed are seeing failed payments turn into churn more than 10 per cent of the time. This can negatively impact customer relationships, with over half of about 54 per cent of decision-makers surveyed saying that payment failures lead to an increase in customer dissatisfaction.

 “Forrester consulting findings demonstrate exactly why payments are high leverage. There are clear connections between failed payments and negative business impacts such as bad debt, churn and customer dissatisfaction,” said GoCardless chief executive officer Hiroki Takeuchi, in a statement.

Payment failures are also costly and labor-intensive for businesses to collect, with the average business-to-business (B2B) business spending 16-20 per cent of the payment value to recover it. About 51 per cent of the businesses surveyed said that failed payments led to an increased cost of recovery, while 45 per cent of businesses say that payment failures roll into bad debt.

“In this environment in particular, firms recognize the importance of recurring payment solutions that optimize their payment strategy and prevent failure, to avoid increased costs and damaging customer relationships. That is why we developed Success+, which helps businesses efficiently recover an average of 76 per cent of failed payments,” Takeuchi further added.

The report claims that 86 per cent of enterprise companies have more than 20 full-time employees to handle recurring payments, primarily relying on customer relationship management (CRM), billing, and accounting systems whereas 59 per cent of businesses say that higher churn rates result in increased chargeback rates, whilst 57 per cent of businesses say that higher churn rates result in an increase in customer service contact

On average, B2B businesses spend 16-20 per cent of the payment value to recover the payment. If a business has $100 million in annual revenue, with a 7 per cent payment failure rate, and it costs 16 per cent of that value to attempt to recover, that makes it less than $1 million.