Digitized B2B payments upgrade outdated methods
Digitized bill payment in the B2B world is a big deal. Over the past 10 years, some B2B buyers and suppliers have used credit card transaction methods designed for individuals. But it is not the most efficient method for B2B commerce and lacks traction among many B2B companies.
As we digitize billing and remittance data, as well as the payment transaction, we accumulate large amounts of financial information that can be used to automate back office processes.
Erin McCune, Partner and Payments Analyst
Glenbrook Partners LLC
âThere has been a disproportionate interest in enabling card transactions between buyers and vendors for traditional accounts payable invoice transactions,â says Erin McCune, partner at payment consulting firm Glenbrook Partners LLC in San Mateo, in California.
As the dynamics of B2B digitization are on the rise, she adds, it is increasingly clear that traditional banking and payment networks do not have the business process context to integrate them into their payment systems. transactions between suppliers and B2B buyers.
âIt’s not possible for everyone to use the same solution. There are bound to be conflicts, âsays McCune. The fragmented B2B ecosystem is not performing well, she adds. Suppliers have customers who use a large number of different accounts payable and procurement applications and services. Some buyers route suppliers to portals where the supplier’s employee logs in to get purchase orders, download invoices, and access virtual cards for the payment method, she says.
But this whole process can be difficult and time consuming for its users. âThis has led to a phenomenon called portal fatigue in the industry,â McCune said.
And that has sparked a move towards interoperability between payment methods, she adds. Portal fatigue has prompted payment providers to connect with each other “and facilitate efficiency on behalf of their respective buyer and supplier customers,” McCune said.
Payment service providers who automate both accounts payable and accounts receivable back-office processes have the potential to add value and improve efficiency for B2B businesses, she adds.
The wave of arrangements developed in recent years between banks and payment card networks to facilitate transactions between buyers and suppliers will continue, McCune said, providing more options for buyers and sellers. In some cases, B2B companies will use the payment functionality in enterprise resource planning (ERP) or vendor accounting software such as SAP SE and Oracle NetSuite.
Yet B2B payment transactions now increasingly use a facilitating business that sits between the accounting solution and the bank, including payment service providers such as Bill.com, Billtrust and HighRadius. solutions automate discrete processes on behalf of the buyer or supplier, âsays McCune.
Visa and MasterCard payment card networks work with payment technology companies to serve both buyers and suppliers in various geographies. Visa is working with digital services and consulting firm Infosys to integrate Visa B2B Connect, a network designed to accelerate the processing of corporate cross-border payments, with more financial institutions around the world. And Mastercard is working with payment technology company Previse to use artificial intelligence to speed up invoice and payment management.
Other more traditional payment service companies are also making connections with different accounts payable systems. âYou see Deluxe doing that,â McCune says, referring to Deluxe Corp., a provider of check processing and other financial products and services. âThis is an old-fashioned check provider who bought a bunch of vault solutions on the receivables side. Then they built integrations to a bunch of accounts payable solutions.
Lockbox services handle incoming paper or digital payments and are designed to improve cash flow for corporate clients; Deluxe provides safe deposit box services as part of its Internet Receivables as a Service platform. For the third quarter ended September 30, Deluxe said its payment services revenue grew 114.6% year-on-year to $ 160.3 million, while total revenue increased 21.1% to reach $ 532.1 million. (About half of the increase in payment services revenue is due to First American Bank, which Deluxe acquired in June.)
Interoperability between payment systems will continue, connecting diverse ecosystems of buyers and suppliers, rather than forcing the buyer or supplier to use multiple solutions, McCune said. âBuyers work with many suppliers. Suppliers work with lots and lots of customers. It’s ridiculous to think that they are all going to use the same B2B network, âsays McCune. “So this phenomenon is really escalating and creating a lot of inherent efficiency because it has a kind of network of networks effect.”
Additionally, the Federal Reserve and the Business Payments Coalition announced in October that they were working on projects to improve and speed up the way businesses share electronic invoices and remittance information, including the purpose of payment and maximum flexibility of payment terms. Both projects follow a 2020 survey of 2,000 companies, commissioned by the Federal Reserve, which found that more than 90% of respondents want faster payments with more information about remittances.
The digitization of payment transactions and related information, according to McCune, is leading to greater automation that can increase the efficiency of financial management.
âAs we digitize billing and remittance data, as well as the payment transaction, we accumulate large amounts of financial information that can be used to automate back office processes,â McCune says, adding, âIt There is a very powerful opportunity to postulate artificial intelligence (AI) and machine learning, and even not-so-smart robotic process automation (RPA), to all of this data in order to gain efficiency and automate processes for receivables and debts.
Sophisticated AI was originally only available to suppliers and corporate buyers, but now these applications are increasingly available to small and medium-sized businesses, says McCune. âSo if you’re a small business using Bill.com, they’ll read the invoices for you,â she adds.
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