Cash management is an SME's frontline weapon, and payment terms are a key means of keeping it under control – providing companies proactively open negotiations with their suppliers. But this solution remains underutilised by entrepreneurs
Cash flow difficulties are the number one cause of company bankruptcy in Belgium. Business owners face a constant battle to stay in control and maintain the balance of their inflows and outflows. Negotiating payment terms is one of the levers that can be employed: shortening them for customers while extending them for suppliers. In Belgium, the statutory deadline between companies is 30 days. Yet the reality can be different, since either trading partner may deviate from the rule. Where one of the parties is in a dominant position, the other is often obliged to accept the conditions it imposes... meaning its payment term becomes longer. Everything is negotiable, however, even with "big" suppliers, as long as you formalise the situation and ensure you protect your business relationship.
Who is your supplier?
They say information is power, and there is some truth in this. Indeed, the more you know about your "opponent", the more you will be able to turn the tables. How are the company's finances, and what is its cash position? Is it experiencing difficulties? Where is it placed on the market, particularly in relation to its competitors? What is your dependency ratio in relation to this partner? How does it make payments, and what is its purchase history? The answers to these questions will allow you to take up better positions in the negotiations, and find the best angle to launch an attack that catches the other side by surprise. Specialised websites, data banks, word of mouth (the competition): all means are justified in order to find out more!
What do you want to gain?
And a resulting question: what are you willing to put on the table to achieve your objective? In other words, you need to be properly prepared and establish a strategy regarding what you are willing to concede (and how much this will cost you) and what you absolutely want to gain in return. Remember that the other party has presumably not requested anything, and potentially has little to gain. Therefore, you cannot arrive empty-handed. Are you willing to order larger volumes in order to extend your payment terms? Can you envisage a long-term contractual commitment? Could you contemplate paying more in return for spreading your debits further? Imagine you are playing poker: clearly, you should keep your cards close to your chest. Wait for the right time to show your negotiating partner that you are prepared to make concessions.
How can you negotiate successfully?
The art of negotiating is a difficult skill. However well prepared you are, keep the following principles in mind:
- Even if you have brought a proposal to the table, listen to the other side and pay attention to detail so that you can react quickly.
- Do not be frightened of bearing your teeth a little, even if you are concerned about spoiling the business relationship with your supplier. Stand your ground and mention what the competition can offer you, for example.
- You must control how you communicate, so that you avoid giving the impression that you have cash management problems. Emphasise that payment delays do not help anyone, and that it would be better to agree on a reasonable and sustainable schedule.
- If your business relationship is established, mention your positive partnership and your desire to see this continue.
- During discussions, regularly refer to how far you have come and your shared progress to date. This positive tone will be well received.
- If the negotiations stall, try to resolve the difficulty by pulling out a trump card, for example (i.e. a concession).
- Remember: a good agreement is balanced, and leaves neither party feeling wronged. So do not be too greedy: the outcome must be worthwhile.
- Are you happy with the situation? Move to finalise the deal, either by accepting what is on offer or by finally opting for a fair compromise.
The war of the buttons: MasterCard and Visa stand up to PayPal
The battle is on to become the dominant payment method of the future. PayPal may be the dominant force in the online payment sector, but the two giants – Visa and MasterCard – plan to break its stranglehold by joining forces.
Shopping online has never been easier for consumers, who can make their internet purchases in just a few clicks. Yet they are always looking for more: more speed, flexibility and mobility... they have more demands than ever! The industry players, led by PayPal, are all too aware of this reality: the US provider has become the leading online payment service by simplifying the pathway for web customers. So how did it do it? Aside from its money transfer services, the Palo Alto heavyweight offers its customers a "one-click" checkout service by gathering users' banking information in advance and storing it in their accounts (in a so-called digital wallet).
PayPal's payment shortcut has attracted envy, especially at Visa in San Francisco and MasterCard in the village of Purchase in New York state. And with good reason, since the two "oldies" had also launched their own payment solutions: Visa Checkout in 2014 and Masterpass in 2012. One can only conclude that these digital wallets have not been able to topple PayPal from its perch. But although they are in competition in various segments, the world's two largest credit card networks will surely hit back.
A few clicks make all the difference
You will have understood that the battleground is e-commerce, and the principal weapon is the single button that allows customers to check out. It is this button that means the customer no longer needs to leave the sofa to find their wallet or enter their details for the umpteenth time, and can now skip the various confirmation stages. According to information obtained by the financial website Bloomberg.com, Visa and MasterCard plan to join up with American Express and Discover to launch their own shared button, in a combined show of strength intended to counteract PayPal's dominance.
"Strength in unity", says the well-known Belgian motto. But PayPal is one step ahead in this case, it must be said. According to a recent survey (caveat: it was partly funded by the Palo Alto company), almost 58% of US retailers accept PayPal's technology, whereas only 36% of them offer their customers the option of Visa Checkout and just 16% offer Masterpass.
The one-button concept
PayPal may have pioneered this niche, but the alliance formed by these four companies to produce a shared technology heralds a united front, not forgetting other market forces (Android Pay, Apple Pay, Amazon, etc.) and the arrival of cryptocurrencies as a payment solution. In any event, the new one-button checkout process resulting from the merger of Visa Checkout and Masterpass looks set to be unveiled in 2019. The objective remains to offer customers a faster and more efficient online purchasing experience. But to achieve this, Visa and MasterCard must firstly convince retailers to offer it, and then work in tandem with the World Wide Web Consortium, which sets standards for internet browsers.
Though the new digital wallet is yet to be given a name, among the advantages it should offer is greater security, based on the token technology used by the two credit card giants. This has two benefits for customers: instead of using the bank card number, a unique ID is created for each transaction; secondly, data can be kept up to date more easily. The online payment turf war promises to be fierce!
Supply chains: moving beyond sales to create value through services
What if the profit of major manufacturing groups was linked to the maturity of the supply chain services they offer? This is the suggestion of a PwC study of European manufacturing companies.
In a recent study that questioned major manufacturers (notably in the automotive sector) on the subject of the "service supply chain", the consultancy firm PwC identified a significant correlation between the maturity of their services offering and their financial performance. What are "supply chain services"? This concept designates the full range of services offered to customers: from sales and the after-sales service, to active customer assistance and troubleshooting. At a time when pressures are increasing on prices, costs and margins, large manufacturers are constantly looking for new strategies that will allow them to remain competitive.
Evaluating an organisation's degree of maturity
It is therefore no coincidence that some companies are turning to innovative models – with additional encouragement from the rise of the sharing economy that places value on usage rather than possession – creating an increasingly collaborative, client-focused supply chain enhanced by services that add value. However, this evolution requires them to adapt and undergo a transformation. To evaluate the maturity in this respect of the companies it surveyed, PwC devised a matrix showing five key elements and five stages to complete in order to move from a product-oriented organisation to one focused on its customers (a "service leader"). The matrix also identifies points for improvement and action needed to make the step up.
The five key elements of the service supply chain are as follows:
- Development of a genuine services strategy: to maximise the benefits and potential of the services offering, it is imperative that companies integrate it into their value creation model. This implies that they must understand their customers, define what is and is not offered, and set out their price structure and targets. Yet only 10% of those questioned seem to have grasped this.
- Transition from a product-centric organisation to one focused on its customers, in particular by reinventing the company's operation and procedures, etc. This means making "services" an independent segment within the company, in the same way as "sales". But only 12% of the companies surveyed have reached this stage of maturity.
- Optimal management of services on the ground, for example by improved understanding of customer needs, simpler access to technical and maintenance services, and by using technology for the purposes of tracking, follow-up, etc.
- A proactive approach to the supply of replacement parts: the survey found only 4% of industrial firms used predictive models (coupled with machine learning) to anticipate the demand for replacement parts. This means the approach taken to what is a major segment – services offered – remains reactive and reliant on customer requests.
- Confidence in the technological tools: 76% of those surveyed do not exploit the data available to make continuous improvements to their systems, and only 17% share information with their customers. While technological progress continues to accelerate, it is crucial for companies to put their faith in these tools in order to evaluate their operations and offer the best possible range of services.
Five stages of growth to stay competitive
The PwC evaluation model also allows companies to visualise the stage they have reached in their journey towards offering a mature provision of supply chain services: from a "product-centric" to a "customer-centric" organisation. The consultancy firm concludes its survey by stating that "a great deal remains to be done", even for the most mature manufacturing groups. To remain competitive, all companies must establish an optimal, comprehensive range of supply chain services that adds value, especially by placing their trust in technological advances and the progress of the shared economy. In this respect, the early birds are highly likely to be those that catch the worm.
The digital wallet: a "weapon of mass payment"?
Digital wallets have been around for some time, but now look likely to become the default virtual payment method of the future. And with good reason, since they offer much more than mobile transactions.
What is a "digital wallet"? As the name implies, this is a wallet used via digital means such as a smartphone, tablet or computer (it can also be called a "mobile wallet"). It is a digital application allowing users to collate all their financial information in one place, from all their bank details and credit and debit card information to loyalty schemes, promotional offers, tickets, personal details and more. It is a genuine wallet with a big bonus – it also offers connectivity and services, anytime and anywhere. And digital wallets have many more benefits besides: they enable faster, contactless payments and easier deposits, and let users keep on top of their spending and manage their day-to-day budgets, etc. And while their popularity is growing thanks to the progress of technology and increasing take-up by both consumers and retailers, the market is still buoyant too.
From PayPal to Apple Pay
The digital revolution is ripping up the payment method rulebook, both in relation to how consumers themselves make payments and the facilities offered by retailers. Digital wallets are certainly part of the pattern in this respect, as one of the tools of the present and the future. Yet the idea is not a new one. In the 1980s, David Chaum had already created DigiCash, a precursor to virtual payment methods. Then in 1998, PayPal emerged as a solution for buyers on eBay, allowing them to simplify the payment process by storing their credit card. This was the first sign of the digital wallet revolution... but despite the launch of Google Wallet in 2011, the next decisive step forward in the process was not until 2014 and the arrival of Apple Pay, closely followed by a series of competitors (Samsung Pay, Android Pay, Visa Checkout, etc.). Even though it wasn’t the runaway success experts predicted, use of digital wallets is continuing to grow.
Creating added value around the transaction
A digital wallet is more than just a means of making payments. Akin to a "digital Swiss Army knife", it allows its owner to centralise all their financial information (and perhaps more) without carrying everything around in their pocket. The result is easier purchases and greater security in comparison with more conventional payment methods, especially through the use of data encryption. But there are also advantages for retailers: these include transaction processes which are faster, more flexible and accessible, which in turn improve the flow of customer in-store journeys and increase conversion rates for online purchases. But that's not all. Digital wallets provide more methods of communication, more targeted and effective customer loyalty incentives, stronger customer relationships, advanced reporting tools and more. A set of benefits which each take their place in a secure ecosystem.
Millennials are in the know
If digital wallets are becoming the norm, it is because every day, mobile payments are gaining ground on the path towards an ever more cashless world. The number of payments made by smartphone has skyrocketed in recent years. According to the German statistics body Statista, mobile transactions have risen from 5.5 million in 2009 to 64 million in 2016 in Europe alone, a rise driven by usage among younger generations in particular. It is estimated that almost 8 in 10 European millennials (digital natives born between 1980 and 2000) use their mobile phones to make financial transactions and manage their savings. Mobility, practicality, immediacy, connectivity, added value and real-time operations are the demands of these consumers, and the digital wallet is riding the crest of the wave in order to become a crucial tool in the lives of these generations. It still remains that in a forever changing world, the payment market is not yet fully mature; dozens of innovative digital solutions, all with their own ecosystems and benefits, continue to abound. The ultimate app is still in the making...
The (near) future of payments up close
Evolve or disappear: players in the payment sector have to predict the future in order to adapt to a constantly changing market. The future is bright for those who are up to the challenge. That was the conclusion of a study carried out by Accenture.
Generation Z will have the power
According to Accenture, young people born after 1995 will have a great influence over changes to payment methods.These future adults, who were brought up digitally and raised "by" Google and Facebook, want everything straight away and easily. Currently, 69% of them already use banking apps (in comparison with 17% of baby boomers). More than ever, payments will have to meet their ultra-connected needs.
The rush towards "customer experience"
Already under the influence of new generations, the payment universe will no longer be able to limit itself to transactions. Consumers want more, including more services (in a wider sense) throughout their transactions. Companies that are capable of offering a "complete journey" to their customers will hold their attention and gain a real competitive advantage.
Mobile payments take off
Apps and open banking will continue to necessitate mobile payment as a rule, but only so long as the sector's players are able to meet the expectations of their consumers. How will they get there? The race for a unique app that can group all the information and banking transactions in one place is well and truly on. The first company to capture this market will have a great head-start.
A revolution in benefits
Rewards and benefits linked to payment cards now seem outdated and unsuited. In fact, American customers say that they are ready (48%) to change banks just to take advantage of offers that are better, more accessible (online) and fit in with their lifestyles. What will the rewards of the future be like? They will be based on customer experience!
In the face of the challenges that await them, the players in the sector will have to rely more than ever on the strength of their networks. This is an indispensable condition for remaining agile, flexible, connected and effective enough to respond to changes in the market, without increasing investment or the risks.
Fintechs and banks: an engagement announced
In the same vein (regarding increasing collaboration), Accenture points out that banks and fintech start-ups will inevitably work more closely together (and that they complement one another). While the former will bring to the table their brand's legitimacy, expertise and market size, the latter will provide agility and technological innovation. The fruits of this union will produce innovation in payments.
The power of technology
Will coding see off credit and debit cards? This is one of the predictions of the study. For example, thanks to advances in computing, account numbers will be replaced by unique temporary codes. The widely-used token is just a taster of what is to come before a revolutionary surge of several technologies hits payment methods (biometrics, blockchain, augmented reality, etc.).
The relationships between technology and transactions are also going to change, in particular through the increasing number of payment terminals and methods. The digital revolution will therefore affect the way in which payments are accepted, but also the stakeholders in these transactions. This will see the emergence of a new kind of bilateral relationship, where anyone can become a seller.
The constant battle against fraud
As the study points out, the technological methods used for fraud are also evolving at top speed. The stakeholders in the payment sector will therefore have to be extremely innovative in order to fight the fraudsters.
Accenture's message is clear: traditional companies will not survive without completely overhauling and modernising their current payment infrastructure. What should replace them? Systems that are flexible, open and agile.