The COVID-19 pandemic has pushed the U.S. into a recession. U.S. GDP will likely drop by 19% in Q2 of 2020 vs Q2 of 2019. The economy will recover, but analysis from Forrester points to a slow, U-shaped recovery that will be especially painful for the hardest hit industries.
- Airlines: “Coronavirus is grounding the world’s airlines.” The Economist, March 15, 2020
- Retail: “The Death of the Department Store: ‘Very Few Are Likely to Survive’.” The New York Times, April 22, 2020
- Auto industry: “Worst yet to come as coronavirus takes its toll on auto sales.” CNBC, April 1, 2020
- Hotels: “Marriott, Hilton furlough employees as COVID-19 closes hotels.” Hotel Management, March 17, 2020
- Oil and gas: “Oil & gas industry sheds more than 6,000 jobs in a single day.” Houston Chronicle, April 16, 2020
The longer and deeper the recession lasts, the greater the spread of economic damage from these most vulnerable industries to the rest of the economy.
Suppliers are under pressure
The first wave of economic damage outside of these five industries will be felt by their suppliers. As companies in these hard-hit industries struggle for survival, they will put immense pressure on their suppliers in multiple ways:
1. Exercising “force majeure” to cancel supplier contracts.
This can affect suppliers in two ways. The most common may be cancellations of future orders due to lowered demand and the need to preserve cash. This can leave suppliers with excess inventory and disrupted projections. The second, and more devastating, use of force majeure will be to leave invoices unpaid. Suppliers will need to develop a new collections strategy as more of their accounts become delinquent.
2. Demanding suppliers cut prices.
Suppliers may need to lower their prices to keep inventory moving in an environment of depressed demand. They will need to find ways to save costs in order to protect their profitability.
3. Pushing out payment terms to 60–90 days.
Offering longer payment terms will create cash flow challenges for suppliers. Not only will they have a more complicated invoice-to-collections process (with terms for each individual account being more heavily negotiated) but, in order to extend generous terms to their customers, suppliers may need to finance their own expected receivables. AR complications will multiply.
Invoice automation can provide relief
According to the Forrester analysis, invoicing automation has transformed from a “nice-to-have” technology into a business necessity.
And the capabilities of the invoicing automation solution matter. The recent trend towards AP automation has one segment of buyers requiring that suppliers enter invoices into portals while other buyers still require paper invoices. An effective invoicing automation vendor needs to be able to interface with all buyer portals, handle printing and mailing invoices and help suppliers convince their buyers to accept electronic invoices.
A connected suite of AR solutions is also recommended. The massive business and cash flow disruptions of the COVID-19 pandemic will see many more buyers allowing their accounts to become delinquent. This increased need for collections activity necessitates both automation-assisted collections solutions to handle the increased accounts, but also an integrated solution, so that unpaid invoices can be easily migrated to the collections department.
Summary of recommendations from Forrester
Now is the time for AR invoicing automation.
- The recession will put stress on suppliers — AR invoicing automation can help relieve some of that stress.
- Adoption of AP automation has hit critical mass — AR invoicing automation helps suppliers keep up.
- AR invoicing automation delivers benefits in terms of process costs, improved cash management, and customer satisfaction.
- AR invoicing automation is a key element in the digital future of B2B buying.
At Billtrust, we are working hard to help our customers maintain cash flow and keep business moving. Learn more about what we’re doing for customers by exploring our Solution Guides. If you would like to speak to an expert on how Billtrust can help your company’s ongoing efforts in digital transformation, please reach out to sales@billtrust.com.