Cashflow Kings Share Payment Data!

This article appears in our Q1 2022 issue of Finance Transformation Magazine. To download the issue, click here

Howard Trenam, Global Lead at Dun & Bradstreet focussing on Payment Behaviour and Predictive Analytics, explains to CFOs why sharing Payment Data can help protect your Cashflow.

The last couple of years have been interesting to say the least. With the relentless commentary from the press, politicians and scientists saying that we're living through 'unprecedented times' you could be forgiven for being desensitised. However, we truly are in an extraordinary period. Very few events in history have had such a global impact on the people and economies of the world's nations.

With so much uncertainty of what lies ahead businesses face challenges to adapt and change with increasing speed whilst attempting to predict what the coming months and years will look like.

One thing that has become apparent during the pandemic is the public's appetite for insight through data and their ability to absorb and apply it. No longer is the use of data analytics the reserve of academia, industry and commerce. The future will likely be one where consumers require ever increased insight on the businesses, they give custom to.

Following COP26, it's become apparent that public awareness of societal and environmental issues is ever growing so it's likely that regulation surrounding Environmental Social & Governance (ESG) reporting will continue to increase dramatically.

Banks are increasingly providing preferred lending rates to companies with good ESG performance so it's only a matter of time before large investors give disclosure requests into supply chains on the ESG activities of private companies.

It's undeniable that the future for business is to expand Anti Money Laundering (AML) and Know Your Customer (KYC) insight. Organisations are having to look towards data-led approaches and automation with there now being a move to 'Perpetual KYC' models to improve compliance processes and reduce costs.

To follow a data-led approach will require good quality data something that can be difficult to achieve when having to align legacy systems to produce a single source of reliable data and to then manage any changes accurately. This is where many businesses seek the support of data specialists such as Dun & Bradstreet to help monitor risk and compliance.

The future is one of an ever-increasing drive for new and greater insight on businesses which will naturally create pressures. Whilst we look to new sources of insight it will be essential to continue to remain focused on traditional data insights such as financial strength and payment behaviour to reduce risk and improve collections.

So, what of the economic outlook for the UK. Although avoidance of a Brexit no deal did help to improve the economic forecast challenges remain. There is a deterioration in the labour market with longer term vacancies, issues with isolation and gaps in skilled workers in certain industry sectors.

There are inflationary pressures with fuel costs rising, supply chain issues and production lag. Dun & Bradstreet's Covid-19 disruption analysis put the proportion and number of pandemic impacted businesses at 39% (84m) Globally in 2021. SMEs are naturally showing signs of trying to protect against the volatility they face by trying to increase cash reserves.

We are seeing that businesses are beginning to rely on slowing payment to their suppliers to achieve this. Pre-pandemic prompt payment figures for the UK were 46.8%, in 2020 it declined as low as 41.8% and it now sits at 43.4%.

Over the last couple of years, we have seen that payment data has increased in relevance with our clients. Now more than ever suppliers need up to date insight in to how their customers are behaving, and payment behaviour trends are one of the most predictive indicators of financial stress at an organisation.

More than 90% of businesses that fail exhibit a slow-down in payment to their suppliers six months prior to failure making access to payment behaviour insight an incredibly powerful tool for mitigating and forecasting risk.

In the coming year it's expected that the 'green shoots' of recovery will take hold and a true picture of the damage caused to the economy will be unveiled. Payment data is proving key in predicting what that picture is likely to look like. During lockdown payment data was being used to identify signs of life where businesses had stopped or reduced trading but were still making payments and ticking over.

Even though I have the pleasure of working with the world's largest Global Payment Database at Dun & Bradstreet I still believe that many businesses are neglecting the power of this trading insight. Indeed, many businesses remain reticent to share their payment data with credit reference agencies.

As individuals our credit ratings are governed by extremely high levels of scrutiny so why should a business not be held to a similar level of scrutiny? Aside from payment reporting providing vastly increased intelligence on how a business is operating there are tangible operational benefits to be realised by providing the data.

There is a tendency to view providing payment data as a way to punish slow payment but there is a more significant positive reason to provide. Most ledgers that we see tend to have an 80/20 split, with 80% of customers paying well and the remaining 20% failing to meet terms and creating the work.

By providing your payment data you will not only be reporting poor payment but also the good payment and reporting this, will have a positive effect on their scores. With positive credit scores their ability to raise funds and accelerate growth will improve likely resulting in more orders to you as a supplier. In addition to rewarding your prompt payer's, payment data is also invaluable in helping forecast and mitigate risk whilst supporting improved collections.

Dun & Bradstreet enters a partnership with our payment data providers and in return for participation in the Payment Data Exchange program and without cost we provide in-depth insight on the payment habits of your customers.

Being able to see how customers are paying their other suppliers provides actionable insight. By focusing efforts on chasing customers that pay others quicker is likely to return better results.

In my role I often work with our partners to use payment differential analysis to successfully streamline collections strategies. With credit control departments being placed under ever increasing pressures on efficiency surely any insight that will allow for maximised results with restricted resources should be welcome.

Data is the keystone of business intelligence and with the increasing pressure on companies to know
their customer in greater detail we should all be embracing the sharing of data.

About the author: Howard Trenam

Having worked in Dun & Bradstreet's Payment Data Team for 15 years, Howard is passionate in promoting the value of payment behaviour data as a highly predictive indicator of financial stress. Currently as Global Leader of the Payment Retention and Analytics Team, he supports global clients to improve collections strategies and mitigate risk.