Member Article

Four business payments challenges for the retail industry

Ed Adshead-Grant, General Manager, Payments at Bottomline Technologies

Whether you’re a retailer, a manufacturer, or a distributor, with the festive trading period over, many will be reflecting on the final sales figures and discussing lessons learned. While buying, merchandising and sales are usually the focus of these conversations, it’s important not to forget the game-changing role finance also plays.

Peak trading periods can be challenging for finance functions as they seek to optimise their working capital to meet demand at this critical time. Here are four specific challenges that finance departments’ face at times of mass demand, and tips on how to manage them.

Managing Payment Terms

Retailers, distributors, and suppliers will often negotiate temporary payment terms during peak periods to help meet demand and margins. Larger suppliers may impose more challenging payment terms where goods are supplied on a commission, or on a sale or return basis.

When it comes to flexing your payments systems, using internet banking to process a small number of payments might be manageable. However, when suppliers begin to negotiate different payment terms for each of their goods in turn, the payment process becomes more complicated and time consuming.

For businesses that still rely on internet banking for payments, it is worth considering a direct Bacs approach. This supports both bulk payments and multiple payment scheduling, allowing businesses to plan batches of payments to multiple banks in advance and exploit any credit opportunities. As your business grows so will the volume and value of your payments, increasing the need for more secure, controlled, and auditable processes.

By going direct to Bacs, payments can be submitted six hours later than most internet banking alternatives. For businesses, especially those operating just-in-time supply chains, the flexibility of a few extra hours can make a significant difference to their finances and reduce expensive, last-minute CHAPS payments. Quicker still is the Faster Payment Service for corporates, which offers the ability to process an almost immediate, same-day payment.

Seasonal Staff

Many businesses in the retail industry employ additional staff to help meet the increased demand during holiday seasons. For larger organisations that have highly integrated Enterprise Resourcing Systems, it’s a straightforward process to on-board temporary employees. Yet for smaller businesses, many still rely on internet banking to process ad-hoc payroll payments to temporary workers, or overtime payments to full-time employees.

Making a few manual ad-hoc payments per day might be manageable, but as the volumes start to increase, the risk of error increases. We have seen cases where seasonal staff have been paid a whole extra month’s salary after they had left their position. Payment process automation helps businesses to better and more accurately manage fluctuations in payroll payments and mitigate the risk of manual error.

Accounts Receivable

While some holidays cause a surge in business, it’s equally important to plan around local or international holidays that cause a slowdown for organisations, especially those outside of retail. While Christmas is an obvious example, if your business trades with China, then you must plan for the Chinese New Year when businesses can be closed for up to a month. That means clearing outstanding invoices so you get paid and maintaining optimal working capital while your customers are on holiday.

Technology can play an important role in this planning.

If an invoice does not get delivered or seen, the process stops. Evidence indicates that whilst 80% of credit notes are opened and read, over 30% of invoices aren’t acted on. When the value of un-actioned invoices is high or inertia persistent, the impact to the supplier can be significant, causing payment delays, relationship issues, manual inefficiency, and increased cost.

Document traceability offers the next logical step in the paper to automation switch. It provides insight into processes outside of a business’ four walls, providing a clear audit trail into the delivery journey and action taken. This helps finance departments prioritise and target high value, un-actioned transactions, enabling them to mitigate cash at risk, encourage quicker payment and optimise working capital – the lifeblood for every business.

Business Payments Fraud

Despite increased anti-fraud measures implemented by UK businesses, fraud is still considered one of the bigger enemies to revenue.

Generally, external cyber fraud and retail payment fraud are the biggest concern for most businesses due to the high-profile headlines such incidents attract. However, companies should be careful not to invest a disproportionate amount of money safeguarding against external threats at the cost of internal vulnerabilities.

The exploitation of weak internal controls and processes - by an external party, an employee, or in collaboration - can lie undetected for months, causing significant long-term damage to the organisation. Last year we conducted a survey that found that only 38 per cent of financial decision makers worry about this type of fraud. A concerning statistic given that KPMG reports 74 per cent of frauds are committed this way.

Businesses can no longer afford to be reactive. There is a clear call to action for companies to put the correct security measures and education in place to help protect against internal and external payment fraud. Ongoing training, reviewing process weak spots, automating procedures, and implementing adversary technologies will help reduce the risks of payment fraud.

Whilst many of these pain points are most felt during times of peak trading, it is important to consider and implement these approaches ahead of such periods. Not only does it reduce the pressure, but it also enables an operational model where finance can make a significant contribution to optimising and capitalising on high demand.

This was posted in Bdaily's Members' News section by Ed Adshead-Grant .