Those of us tuned in to the business-to-business (B2B) payments market heard interesting stories about the chaos the pandemic brought to the industry: finance teams venturing into the office after hours to collect and process paper invoices, late-night, at-home drop offs so company officers could sign paper checks, and so forth. The pandemic upended non-digital elements of day-to-day business, highlighting the over-reliance on antiquated, manual processes and the resulting inefficiencies – and even breakdowns – that threatened business continuity and the bottom line.
Because of the pandemic, there’s now greater awareness of the need to digitize and automate B2B payments, as well as the significant opportunity digitization represents for businesses that are actively seeking efficiency gains and cost reductions. An estimated 50% of B2B payments are still made via check.
Digitization also represents a significant opportunity for payment technology providers, which recognize that this market is massive and underserved. Total B2B payment volume is estimated to be over $125 trillion — four times the volume of consumer-to-business payments.
Good enough isn’t good enough anymore
Today, many companies default to a state of “stable inefficiency” because their manual B2B payment processes work well enough. Looking forward, however, several factors are converging to make the status quo untenable. Digitizing B2B payments is clearly not simple – if it was, businesses would have transitioned years ago – but work from home trends, labor shortages, the desire to cut costs and the increased frustration from old B2B payment pain points together may be the catalysts that motivate companies to make the switch.
Digitizing B2B payments – including accounts payable, accounts receivable, vendor payments, payment acceptance, expense reimbursement and employee-initiated spending – offers speed, security, convenience and rich data for buyers and suppliers. And don’t forget a boost to the bottom line thanks to cost reductions. Processing a single paper invoice costs between $4 and $8, according to one estimate used by the Fed.
As we transition into a post-pandemic “new normal” of hybrid work models for finance teams, the question is shifting from whether businesses should implement a digital payments strategy, to: What digital system should we adopt – and how quickly can we make the move?
Ensuring digitization lives up to the hype
White papers are often written about specific features that businesses need when digitizing their B2B payments (ERP integration factors are important). However, as important as those details are to ensure new systems function smoothly, companies are better served starting with broader questions – about moving to the cloud, enrollment processes and innovation – to ensure they start their modernization journey with the right overarching strategy and outcomes in mind. Getting the vision right on the front end multiplies positive results on the back end.
Upgrade to a cloud native platform
Cloud-based software solutions can automate every step in the accounts receivable and payable process, wrapping a rich array of value-added, data-driven capabilities around payment flows, from analytics to reporting and reconciliation. This provides greater real-time insight, reducing the need for suppliers to spend precious time calling buyers to chase payments or for buyers to wait for confirmation of payment, for example. Because cloud-native and API-enabled solutions are fully modern and extensible, they can also be tailored to address customers’ data and analytics needs and integrated with ERPs to sync invoice and payment data, providing one financial system of record. And, it goes without saying, you can access them from anywhere.
Adopt an enrollment process your team can handle
Enrolling new suppliers and setting up payment agreements is a top barrier to digitizing B2B payments because companies often underestimate the amount of time and resources this process takes. To ease the burden, many in-house AP departments turn to automated solutions that include a managed services option. In these cases, a third-party technology provider enrolls suppliers and executes payments. This not only alleviates pain points and removes barriers when implementing digital solutions, but it reduces the risk of mishandling sensitive payment details, missing a step in the process or making other errors that stem from burdensome workloads on in-house teams. These benefits also accrue to AR teams that work with a managed services provider to help digitize incoming payments process, enroll customers and accelerate receivables.
To keep pace with constantly changing regulatory issues, maintain the highest levels of compliance and control, and maintain tight security, businesses should consider incorporating a managed service element to their digital B2B payments ecosystem.
Ensure your new system can adapt to innovation
The world of cross-border payments is a complex web of multiple accounts held at banks with high transaction fees and slow execution. Stablecoin crypto or central bank digital currency solutions could reduce reliance on banks in these transfers and drive material cost savings for payers and recipients. But whether these solutions find their footing or others emerge, businesses should adopt digital systems that can evolve to take advantage of trends that could further reduce costs and increase efficiencies.
As we move beyond the pandemic, but continue to grapple with ongoing disruptions to global commerce, the digitization of B2B payments keeps gaining traction and the tipping point away from checks and manual payments is here. Now is the time for businesses to transition from paper-based payments to a seamless, digital connection of all the steps in the business payments cycle. By creating a digital B2B payments ecosystem, businesses have more visibility into how funds are moving. They also gain the transparency and control needed to reduce errors, mitigate payment-related fraud and optimize cash flow to fuel growth – no matter where employees are working.