Inefficiencies in global Business-to-Business (B2B) trade are rarely visible as congestion at ports or imposition of tariffs. Instead, a meaningful bottleneck exists in the substantial delays experienced between invoice issuance and actual payment receipt.Billions of dollars in cross-border transactions are currently tied up, not in logistical challenges, but in extended payment cycles.
The Growing Problem of ‘Time to Cash‘
Table of Contents
- 1. The Growing Problem of ‘Time to Cash’
- 2. Outdated Systems and Regulatory Hurdles
- 3. Impact on Business Strategy and Growth
- 4. Compliance Complications Add to Delays
- 5. The Path Forward: Accelerating Time to Cash
- 6. Understanding B2B Payment Models
- 7. Frequently Asked Questions about Time to Cash
- 8. How does a focus on reducing Time to Cash (TTC) enable cross-border B2B companies to respond more effectively to volatile global economic conditions?
- 9. Measuring Success: Why Time to Cash Is Redefining Cross-Border B2B Growth Goals
- 10. Teh Shifting Landscape of B2B Growth
- 11. What Exactly Is Time to Cash?
- 12. Why TTC Matters More Than Ever for Cross-Border B2B
- 13. The Direct correlation Between TTC and Growth Potential
- 14. Strategies to Optimize Your Cross-Border TTC
- 15. Real-World Example: A Manufacturing Company’s Turnaround
This lag, often referred to as “time to cash” within financial and treasury circles, is increasingly recognized as a critical benchmark for companies pursuing international expansion. A prolonged collection period restricts available liquidity, impeding reinvestment in essential areas like inventory, personnel, and market growth.According to a recent report by the Association for Financial Professionals, approximately 61% of companies cite slow payment as a major obstacle to growth.
Outdated Systems and Regulatory Hurdles
These delays are frequently attributed to outdated financial systems, complex compliance protocols, and fragmented international banking networks. Traditional correspondent banking, where funds transit through multiple intermediary banks, remains a common method for cross-border B2B transactions. Each transfer point introduces additional fees, compliance reviews, and settlement delays.Consequently, many businesses, especially those operating in emerging markets, may wait 30, 60, or even 90 days to receive payment.
The disparity between the speed of physical goods transport-frequently enough circling the globe in under two weeks-and the sluggish pace of international payments is becoming increasingly unsustainable in today’s fast-paced digital economy. These delays not only frustrate Chief Financial Officers but also considerably influence strategic business decisions.
Impact on Business Strategy and Growth
Suppliers facing delayed payments from overseas buyers may be compelled to secure expensive credit lines to maintain operations. Exporters might hesitate to enter new markets if it means locking up capital in slow-moving receivables. This friction distorts pricing structures, fosters conservative growth strategies, and can effectively exclude smaller businesses from participating in global trade.
“The world is accelerating at a rate that many organizations struggle to match,” explains Wendy Tapia, Head of Product, Receivables at FIS, as reported on Wednesday, September 10th. “Legacy systems and fragmented processes unintentionally limit agility and scalability.” Tapia further emphasized, “A unified cash view aligns procurement, operations, and treasury teams, enabling CFOs to confidently fund growth initiatives, including Research and Development, acquisitions, and expansion projects.”
Compliance Complications Add to Delays
increasingly stringent Know Your Customer (KYC) and anti-Money Laundering (AML) regulations, designed to combat financial crimes, contribute to extended payment processing times.While these compliance measures are vital for maintaining financial integrity, they often involve manual, repetitive, and opaque processes. Small to medium-sized businesses (SMBs), lacking dedicated treasury departments, are disproportionately burdened by these compliance requirements.
The Path Forward: Accelerating Time to Cash
Data is becoming the crucial element in streamlining the flow of money in global trade. Companies are beginning to assess potential markets not only on projected revenue but also on cash conversion cycles. A market generating substantial sales but holding capital for an extended period might potentially be less desirable than one with lower volume but faster settlement times. This shift in viewpoint is prompting businesses to re-evaluate their geographic footprint and partnership strategies.
Efforts to streamline cross-border B2B payments include leveraging digital and programmable currencies, enhancing transaction visibility, and bridging trust gaps within the complex regulatory landscape. These strategies promise to rewrite the rules of global growth.
| payment Method | Typical Time to Cash | Complexity | Cost |
|---|---|---|---|
| Correspondent Banking | 30-90 days | High | High |
| Digital Payment Platforms | 1-5 days | Medium | medium |
| Programmable Currencies | Near Real-time | Low | Low |
Understanding B2B Payment Models
The landscape of B2B payments is constantly evolving. Beyond traditional methods, emerging technologies like blockchain and distributed ledger technology (DLT) are being explored to enhance security, transparency, and speed. These innovations aim to create a more efficient and reliable global payment infrastructure.
Did you know? According to a recent study by Juniper Research, the value of cross-border B2B payments is projected to reach $185 trillion by 2027, highlighting the immense potential for improvement in this area.
Pro Tip: Regularly review your payment processes and explore alternative solutions to identify opportunities for optimization and cost reduction.
Frequently Asked Questions about Time to Cash
- What is ‘time to cash’ in B2B trade? It’s the period between invoicing a customer and receiving payment.
- why is ‘time to cash’ vital? Longer cycles tie up capital, hindering growth and investment.
- What are the main causes of delays in B2B payments? Outdated systems, compliance regulations, and fragmented banking networks are key factors.
- How can businesses improve their ‘time to cash’? Implementing digital payment solutions and streamlining compliance processes are essential steps.
- what role does technology play in accelerating payments? Technologies like blockchain and DLT offer enhanced security, transparency, and speed.
- Are SMBs more affected by slow payment cycles? Yes, due to limited resources for managing complex compliance requirements.
- How are companies benchmarking international expansion today? They are considering cash conversion cycles alongside projected revenues.
What challenges does your company face with international payments? Share your thoughts in the comments below!
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How does a focus on reducing Time to Cash (TTC) enable cross-border B2B companies to respond more effectively to volatile global economic conditions?
Measuring Success: Why Time to Cash Is Redefining Cross-Border B2B Growth Goals
Teh Shifting Landscape of B2B Growth
For years,cross-border B2B companies have focused on top-line revenue growth as the primary indicator of success. While revenue remains crucial, a new metric is rapidly gaining prominence: Time to Cash (TTC). This isn’t just about faster payments; it’s a fundamental shift in how businesses evaluate and optimize their entire international expansion strategy. Traditional metrics like market share and sales volume are becoming secondary to the speed and efficiency with which revenue translates into usable cash flow. This is particularly vital in today’s volatile global economic climate.
What Exactly Is Time to Cash?
Time to cash represents the total number of days it takes for a business to convert the moment a sale is made into actual cash received. It encompasses every step of the process, including:
Invoice Creation: the initial billing process.
Payment Terms: Agreed-upon timelines for payment (Net 30, Net 60, etc.).
Currency Exchange: The time and cost associated with converting foreign currency.
International Payment Processing: Navigating varying banking systems and regulations.
Remittance & Reconciliation: Receiving funds and matching them to original invoices.
A longer TTC ties up working capital, increases financial risk, and hinders reinvestment opportunities. Conversely,a shorter TTC fuels growth,improves liquidity,and provides a competitive advantage.
Why TTC Matters More Than Ever for Cross-Border B2B
Expanding internationally introduces complexities that dramatically impact TTC. Here’s a breakdown of the key challenges:
Extended Payment Cycles: International B2B transactions often involve longer payment terms than domestic sales.
Currency Fluctuations: Exchange rate volatility can erode profits and create uncertainty.
Complex Regulatory Environments: Different countries have varying regulations regarding invoicing, payments, and tax compliance.
Banking Infrastructure Disparities: Access to efficient and reliable banking systems varies significantly across the globe.
Cultural Differences: Payment preferences and business practices differ across cultures. For exmaple, some regions favor letters of credit, adding critically important time to the process.
These factors combine to create a significant drag on cash flow,making TTC a critical area for optimization.
The Direct correlation Between TTC and Growth Potential
A streamlined TTC directly impacts a company’s ability to scale.Consider these benefits:
Increased Working Capital: Faster access to cash allows for reinvestment in sales, marketing, and product advancement.
Reduced Financing Costs: Lower reliance on external financing (loans, lines of credit) due to improved cash flow.
Improved Forecasting Accuracy: Predictable cash flow enables more accurate financial planning and budgeting.
Enhanced Competitive Advantage: The ability to offer competitive payment terms and respond quickly to market opportunities.
Stronger Supplier Relationships: Prompt payment builds trust and strengthens relationships with key suppliers.
Strategies to Optimize Your Cross-Border TTC
Reducing TTC requires a multi-faceted approach. Here are some actionable strategies:
- Embrace Digital Payment Solutions: Move away from traditional methods like wire transfers and checks.Explore options like:
Virtual Accounts: Collect payments locally in multiple currencies.
Cross-Border Payment Platforms: Services like Payoneer, Wise (formerly TransferWise), and Airwallex specialize in efficient international payments.
Automated Invoice Management: Implement software that automates invoice creation, delivery, and tracking.
- negotiate Favorable Payment Terms: While offering competitive terms is important, actively negotiate with customers to shorten payment cycles where possible.
- Localize Payment Options: offer customers the payment methods they prefer in their region. This could include local bank transfers, e-wallets, or credit cards.
- Currency Risk Management: Implement strategies to mitigate currency fluctuations, such as:
forward contracts: Lock in exchange rates for future transactions.
Natural Hedging: Match revenues and expenses in the same currency.
- Automate reconciliation Processes: Utilize software to automate the matching of payments to invoices, reducing manual effort and errors.
- Implement Dynamic Discounting: Offer small discounts for early payment to incentivize faster remittance.
Real-World Example: A Manufacturing Company’s Turnaround
A european manufacturing company exporting to Southeast Asia struggled with a TTC of 90+ days. This severely limited their ability to fund further expansion in the region. By implementing a cross-border payment platform offering virtual accounts and localized payment
