Modernizing B2B payments

 

When Charles Darwin popularized the term “survival of the fittest,” he never could have anticipated just how prescient it would be for businesses over 150 years later. During the past two years, companies have come face to face with a new reality — embrace the change that’s afoot in the marketplace or risk losing out to your competitors. This new reality is especially acute for how companies manage accounts payable (AP).

 

The onset of the pandemic brought about remote working en masse. Seemingly overnight, a host of companies that relied on physical checks took drastic measures such as sending check printing machines home with their employees to ensure business didn’t grind to a halt. And for those AP departments that were already considering digital payments, this was the catalyst for finally making the shift.

 

The shift to digital payments

 

Digital payments hold a special allure for companies that want to work more efficiently and intelligently. By having payment data centralized, digitally accessible and auditable, businesses have the power to extract data, analyze it and get better insight into their vendor relationships. For example, as you think about how to improve operational efficiencies, you may want to consider which vendors you are working with the most and whether you can negotiate a vendor discount.

 

“We’re finding that companies of all sizes are more interested in digital payments,” suggests Lindsay Huston-Herbst, head of B2B Payment Solutions and Card Product Management at Bank of America. “In the past, maybe the hurdles were too large. But the combination of disruption resulting from the pandemic, access to better technologies and a greater ease of integration with companies’ existing platforms have made the idea of digitalizing payments more appealing and less overwhelming.”

 

The obvious benefits notwithstanding, companies cite several barriers keeping them from making the leap — including vendor adoption, the perceived costs and concerns over the ease of integration.¹ Fortunately, the obstacles are decreasing with each passing day, especially as more financial institutions partner with fintechs.

 

“Through our own partnerships with fintech providers, we have seen tremendous changes in the last two years. The shift to digital has become simpler and the rate at which we can convert customers to a digital system is only increasing,” says Huston-Herbst.

 

 

Setting goals and doing your homework

 

Even though the case for digital payments is compelling, change of this magnitude is no simple undertaking. For starters, once you have buy-in from senior management, you’ll want to set achievable goals that can be supported by metrics so that everybody understands the return on investment (ROI). For example, are you reducing the number of checks being cut? To what extent are you reducing errors? Will you receive rebates on some digital payments, thereby lowering the total fees you incur?

 

Next, as you begin considering your options for digital banking providers, do your due diligence. In the B2B digital payment space, there is a growing number of options for mid-sized companies. This is all the more reason companies should take the time to conduct the necessary due diligence. Central to this process, Huston-Herbst suggests evaluating potential digital payments providers based on three overarching criteria: 1) people, 2) process and 3) technology.

 

People. Some digital payment providers may have the capability, but they don’t have the manpower to make sure that your suppliers understand why it’s beneficial for them to move away from checks and begin accepting digital payments. For example, does the partner you’re considering have people who specialize in talking to your vendors about accepting digital payments? Will they pick up the phone and call the supplier if the payment isn’t processed?

 

 

These are critical elements of the service that technology can’t replace. If your digital banking provider doesn’t have the people, then your company’s AP department will have to check online whether the payment was processed. And if the payment didn’t get processed, then you’re back to cutting a check.

 

Process. When you think about process, this involves the banking provider’s network, which for some banks include a network of hundreds of thousands of suppliers who already accept digital payments. Once you hand over your AP file, potential partners should be able to tell you on day one exactly how many of your suppliers have opted into their network and are ready to accept digital payments.

 

Technology. When talking about digital payments, what often gets overlooked is the additional work for suppliers to accept digital payments versus a check. To ease the burden, your suppliers should be able to view remittance data and check the status of an invoice approval using the digital payment platform. All of this data should be stored in one place, auditable and easy to search both for you and the supplier.

 

For these reasons, ease of integration is paramount. Does the digital payments provider you’re considering offer API (application programming interface) integration, which will allow you to quickly integrate with NetSuite or QuickBooks, for example? In an ideal situation, you want the ability to log into your ERP (enterprise resource planning) system and approve the payment, and then an API will process those payments on your behalf. This allows you to work in one, fully integrated tool.

 

Making a case for digital payments

 

Digital payments reduce exposure to check fraud, provide a better user experience for AP professionals and vendors, and offer potential cost savings. What’s more, converting to digital payments demonstrates your company’s commitment to maintaining its competitive edge. But to get the most out of digital payments you’ll want to ask the right questions and gauge the extent to which the solution you’re considering can help you realize your business objectives. 

 

 

 

¹“Survey: Companies Embrace Electronic B2B Payments,” Association of Financial Professionals, 2020