It's no secret that businesses around the world have beenhoarding cash since the Great Recession. On the surface, thismakes sense. Money in the bank is readily available when it'sneeded for investments, and it can serve as a financial buffershould hard times hit again. However, many companies accumulatecash by squeezing their suppliers—a practice that a recent surveysuggests may undermine the stability of the economy overall.

The study was completed by MasterCard and e-invoicing providerBasware. It polled 1,015 finance decision-makers with a view ofboth accounts receivable and accounts payable. Respondents weredistributed roughly equally across 10 countries, including theU.S., Australia, the U.K., Germany, and six other Europeannations.

Among these respondents, almost half (48 percent) said theircompany has more cash in the bank today than it had a year ago.Only 11 percent said their company's cash position has weakened inthe past year. Businesses that are cash-rich have used a variety oftools to reach that state.

More than two in five respondents (41 percent) said theircompany has accessed credit/financing during the past year.Thirty-five percent have tapped into an asset-based loan, and 34percent have leveraged supply-chain finance. Thirty-seven percent said their companyhas engaged in dynamic discounting, and 35 percent have used factoring.Meanwhile, 44 percent said their organization has tightened paymentterms for buyers. But the flip side of the payment termsequation—delaying payments to suppliers—is by far the survey's mostfrequently cited method for increasing cash reserves.

More than half of respondents (57 percent) said that over thepast year their company has delayed payments. This statisticconcerns Esa Tihilä, CEO of Basware, and Hany Fam, president ofMasterCard Enterprise Partnerships, whose companies have partneredto incorporate payment capabilities into a broad electronic invoicing network. “If a buyer is not paying hisbills on time, he's causing trouble for his suppliers,” Tihiläsays. “When this practice becomes widespread, it can have an impacton the whole economy. And we are seeing that now, in differentcountries. In the European Union, more than half of the economy ismade up of small to midsize businesses. When these companies arepaid late, that causes a cash flow issue. And we are seeing prettysignificant effects in Europe.

“The level of predictability around a company's accountsreceivable has a direct impact on the business's risk-takingbehavior,” Tihilä adds. “When you have predictability in your cashflow, you are able to take risks and to make larger decisions,because you can count on what money is coming in, and when. On alarger scale, lack of predictability affects employment and affectsconsumption, which can have a huge impact on the wholeeconomy.”

One of the survey's more interesting findings may be that 88percent of all survey respondents—and 97 percent of respondentsfrom the United States—believe that companies have a “socialresponsibility” to pay their suppliers on time. Globally, 40percent of respondents believe that persistent late payment ofinvoices limits the flow of funds between employers and workers, 31percent think it limits growth in the economy, and 13 percentbelieve it reduces employment. Survey respondents also see latepayments as limiting the flow of funds between buyers and sellers(45 percent) and between companies and investors (37 percent). Onein five (21 percent) believe it also increases taxes.

Many of these expectations are logical assumptions,considering that nearly half of the finance decision-makers whoparticipated in the survey said their company would invest more inits business if every customer paid its invoices on time. And 35percent said eliminating late customer payments would improve theirown relationships with their banks. (See Figure 1.)

Nevertheless, 67 percent of all survey respondents, and 77percent of those from the United States, admitted that theircompany has used payment terms as a strategic lever to help manageits cash flow during the past year. Nearly three-quarters indicatedthat they think late payment is an unavoidable fact of businesslife (72 percent of respondents from the U.S. and 74 percentoverall).

“People agree that payments should be made on time,”MasterCard's Fam says. “But they're nervous, so they're using latepayments as a means of cash flow management in times ofuncertainty. In some cases, they're incapable of paying on timebecause they don't have adequate insight into their own cash flowcoming in from people they're expecting payments from.” It's avicious cycle, and one that Basware and MasterCard have set out tobreak.

“Lumpy cash flows are a function of lumpy orders and invoices,”Fam says. “And lumpy orders and invoices are a function ofuncertainty in corporations. If companies can interact and transactand purchase and pay in a more consistent, stable fashion, thatwill have a positive effect on transparency of operations,predictability for the business, and even on the overalleconomy.”