B2B Payments

Ending The Blame Game In B2B ePayments Adoption

It’s 2015, and the era of electronic payments is here. But so many businesses in the supply chain are stuck in the ’80s, paying by paper check and either unwilling or unable to adapt to the modern age of procurement.

New research commissioned from ePayments solution provider Bottomline Technologies and conducted by Ardent Partners delves into the reasons why businesses are not more quickly adopting ePayments, and the results uncover a complicated web of barriers and unwillingness to do so. But, as the authors of “ePayments Rising: The 2014 Market Report” make clear, there are ways companies can overcome these obstacles. The success of their businesses may depend on it

The State of ePayments

Digital payments is no longer a concept for the far-off future. The modern Chief Procurement Officer’s role has shifted from front-facing responsibilities of treasury and corporate finance to more behind-the-scenes roles in the accounts payable department. According to Ardent Partners, this shift has given CFOs a greater focus on the payment mechanisms deployed by their companies.

This shift, the research suggests, also coincides with the rise in electronic payments. According to the study, 71 percent of companies today are now entirely capable of paying their supplier digitally, and 89 percent of businesses surveyed said that they expect a majority of their suppliers to be paid electronically by 2016.

A combination of the perception that the paper check is fast approaching irrelevancy and the acknowledgement of the benefits of ePayments has led to this rise. A whopping 90 percent of companies said that ePayments can reduce costs and offer greater control over the payments process than is offered by the paper check. Further, 88 percent of companies said they anticipate the fall of the paper check, and the majority anticipate the migration from the check to ACH, card payments and B2B payment networks. Already, more than half of B2B payments are made electronically.

This data appears to represent significant progress of electronic payment adoption among the B2B community, notorious for its outdated business methods. But a closer look at that other half of payments that are not processed and transferred electronically paints a more troubling picture about the state of B2B ePayments today.

Playing The Blame Game

Businesses are aware of these shortcomings. Research revealed that 42 percent of companies said their top challenge in the AP department is the invoice and payments approvals process, which they argue takes too long – more than 12 days, on average, costing more than $14 per invoice. Meanwhile, it costs about $8 to process a single supplier payment.

More than three-quarters of AP departments said that there is no link across the entire procure-to-pay pipeline, and 68 percent said that there is no tool or process available to them that optimizes corporate working capital.

There are a plethora of reasons companies give for why they have not yet adopted electronic payment methods, and many of these pose as significant barriers. While 71 percent of companies can pay their suppliers digitally, AP departments say the gap is on the side of the suppliers, with about 30 percent of suppliers unable to support digital payments. More than one-fifth of AP departments said they could not convince suppliers to adopt ePayment support.

For suppliers, the largest struggle is the cost of integrating a mechanism to support getting paid digitally, with 46 percent of companies surveyed citing this cost barrier as the largest deterrence.

But other reasons seem inexcusable. For example, while Ardent Partners declared that businesses must analyze their current payment systems to analyze relevant metrics and understand where they are succeeding and failing in their payments processes. In other words, companies should establish a baseline before they progress with ePayment adoption.

"Attempting to improve operations without understanding the current state baseline (caused by an inability to capture key operational and performance metrics) is like starting a trip to an unknown destination when you are already lost – if you do not know where you are going, any road will take you there,” the report said.

But more than one-fifth of AP departments lack the ability to track these metrics – which include cost per payment, percent of ePayments currently made, and percent of suppliers currently accepting ePayments. Worse, up to 18.6 percent of AP departments actually choose not to analyze this information.

This lack of proactivity means that more than half of AP departments are missing out on early payment discounts.

How To Adapt

As The Doors once proclaimed, “the time to hesitate is through.”

AP departments must analyze their current payment processes, educate their suppliers, explore supply chain financing and early payment options, and utilize a B2B payments network – all characteristics of what Ardent Partners found to be best-in-class strategies to adopt electronic payments. Suppliers must acknowledge the long-term cost effectiveness of supporting ePayments to overcome the barrier placed on them by initial implementation costs.

Of course, this is no easy task. “The truth is that business process transformations are rarely an overnight success and enterprise-level initiatives, in particular, take time, perseverance, and commitment in order to advance and succeed,” the research report’s authors wrote. But wasted time and money, and facing the extinction of the check, mean that these ePayment efforts will be worth their while.

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Our data and analytics team has developed a number of creative methodologies and frameworks that measure and benchmark the innovation that’s reshaping the payments and commerce ecosystem. The July 2019 edition of the FI Innovation Readiness Playbook examines how the innovation playing field is leveling as small FIs implement bolder strategies and larger banks adopt more measured approaches.

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