Within the B2B payments realm, some 34+ years after the first online B2B transaction was made, paper invoices and paper checks still rule. So what’s it going to take to get businesses to get out of their old paper check mindset and jump ship to e-payments? MPD CEO Karen Webster and Rhonda Rogers, VP of Payment Services at AvidXchange, took part in a recent live digital discussion to discuss just that, examining the evolution of payments, B2B style. Rogers offers an inside look at how businesses will start to embrace the promise and opportunity that is digital – and how that will affect their bottom line.
The conversation began with an introduction from MPD CEO Karen Webster, who set the scene by reminding the audience that the whole world is moving digital. And while still a small part of overall commerce, eCommerce is experiencing an explosive growth. But 50-60 percent of businesses still use paper – and that’s because the workflow and the data needed to support the digitization of payments remains elusive in the space. So when, she asked, will B2B look to the cloud, and embrace the promise and opportunity that is digital?
WHERE B2B PAYMENTS HAS BEEN
Rhonda Rogers, VP of Payment Services for AvidXchange kicked off her presentation with a quick trip down payments' memory lane. Only with an understanding of payments’ past, she said, can we fully know what it will take to break the old habits. Below is a brief timeline of important dates covered:
- 1887: The concept of the credit card was first discussed.
- 1950: Diners Club International was introduced.
- 1972: ACH emerged (yet the amount of paper checks still used today, said Rogers, is “mind-boggling).
- 1981: The first B2B transaction online was made.
- 2009: MasterCard introduced the virtual credit card. AvidXchange, added Rogers, has been a pioneer with the virtual credit card, processing thousands every day to vendors for B2B transactions.
SEEING B2B PAYMENTS’ EVOLUTION FIRSTHAND
“Everything we’re experiencing as consumers on the payments side of our lives is really being made more digital,” said Webster. “We’re still writing checks but probably not as many, and still using cash but probably not as much. What’s your perspective from the B2B landscape, with respect to helping businesses embrace digitization?”
Rogers has worked in B2B payments over the past two decades, and has seen the problems companies come across in making the move to e-payments. But she’s also seen the great potential for their organizations once they do.
She started in accounting in the late '80s; back then, paper checks were the only method of payment that the companies she worked for used. Copies of every single check had to be made, and there were file cabinets after file cabinets of them. All through the '90s, they were still the primary payment source.
But from 2000 to 2005, she said, there’s been a slow transition over to ACH payments. But the fear that most companies run into is, if they’re sending that payment electronically, they’re going to need to change the mindset of those financial professionals that want to review the information.
“It’s about convincing them they can still get the information they need, but they don’t actually have to have the physical stack of check copies in front of them,” said Rogers.
Another concern initially on the vendor side, she added, was that they weren’t going to receive the remittance data needed to post a payment with e-payments, especially when it’s one lump sum payment paying multiple invoices.
“It’s been challenging in the last 10 years or so to work with our vendors and clients to change that mindset.”
So it’s a matter of culture, concerns over workflow, and data, which doesn’t have anything to do directly with payment but influences the whole process, said Webster.
At this point in the discussion, the audience was asked to answer the below poll question:
What percentage of payments do you process electronically today?
1) 0-25, 2) 26-50, 3) 51-75, 4) 75+
Results showed that most audience members were processing very small percentages of payments electronically – 0-25 percent. That came as no surprise to Rogers.
Webster shifted the conversation to ACH volume and the importance of ACH in moving things in an electronic way. Looking at recent stats about ACH, there were 22 billion payments in 2014, up 4 percent over the year prior. From a B2B perspective, that volume is also up significantly. What, she asked Rogers, do you observe with the companies you’re working with, and generally, with respect to ACH?
“I think they are finally starting to understand that that remittance detail will be transmitted – there are a couple different formats to use depending on how many agenda records one needs to send,” said Rogers. “But I think a lot of it has been working with folks to change that perception – the word is getting out. I also think that in accounts payable, they’re starting to drive that change with the financial management teams to make them understand they’ll still have control over what they’re approving to pay.”
Obviously, ACH has many benefits – security is just one feature, said Rogers. But from an AP standpoint, it also greatly reduces the amount of outstanding payments or checks researched on a monthly basis.
Webster then asked, why are organizations so enamored with the move to the cloud, and taking paper off the table, literally? What’s your perspective on how you view these statistics with companies you work with?
And when it comes to mobile device usage, once management is comfortable with approving e-payments, along with using a workflow tool that allows them to see exactly what’s being paid, things can be approved from anywhere – a phone, laptop, etc. And that’s been part of the driver, said Rogers.
“When you think about cost efficiencies, you’re also looking at labor costs – the cost of people to cut checks, and stuff and mail them, or even if there’s a machine that does it for you, you don’t have to worry about the maintenance costs associated with that.”
Webster asked, “Are there particular types of businesses that are more mobile-centric than others? I know everyone on the consumer side of the equation uses mobile devices, but from a business perspective, are there certain types of businesses that embrace mobile more than others?”
It definitely differs based on the size or type of business, said Rogers. Tech companies and banks are more apt to jump on a phone and approve an invoice or payment. AvidXchange works primarily with real estate and property management, and has been working with clients to change that mindset.
Webster asked how what AvidXchange is seeing matches up to the above percentages – how businesses are using the cloud to drive business transformation.
“For improving levels of service, if a client has an issue with a payment, they’ll create a support case and we’ll look into it. If clients are using paper checks, it requires a call to the vendor, and a long process of steps. But with e-payments, the payment is guaranteed to be received. There may be issues with vendors not knowing where to post it, but they have been provided all of that information,” said Rogers.
Since AvidXchange launched its product three years ago, Rogers added, the company has seen the level of e-payments adoption jump by “leaps and bounds.” Businesses understand that it’s in their best interest, as well as their vendors’ best interest.
The next poll question Rogers asked the audience was as follows:
What would be your No. 1 reason to move to electronic payments?
1) Improve business performance, 2) reduce costs, 3) increasing the visibility to cash flow
Responses showed that both improving business performance and reducing costs were equally most important.
PROBLEMS WITH PAPER
Rogers explained a number of reasons why paper checks should become a thing of the past. It’s difficult and time-consuming to locate missing invoices, there’s a lack of visibility into approvals, the audit testing process involves an excessive amount of filing, there’s a lack of checks and balances for approvals, there’s no reporting capability for analytics, and supporting documentation requires multiple trips to the filing cabinet.
Those old ways are just not going to cut it in an increasingly digital world.
THE AUTOMATION TRANSFORMATION
At first, businesses don’t think their vendors will be receptive to making the move from paper to e-payments, said Rogers. But AvidXchange has found that not to be the case. Even if they’re paying a vendor with a virtual or purchase card, they’ll have to pay a fee, but they will be receiving funds quicker, more efficiently, and more securely.
“The bottom line is that businesses should not automatically assume vendors don’t want to pay a little extra for those added benefits,” she said.
“So one of the inhibitors to making this happen is the presumption that vendors don’t want to receive payment via cards. Can you expand on that a bit? Why is this a myth?” asked Webster.
“We did some research, and going into it, we asked clients about virtual credit cards as a payment method. Usually they will say none-10 percent of vendors would be receptive to that method, but we actually have a 45 percent adoption rate of virtual cards across our vendors,” said Rogers. In reality, the vast majority of the vendors that AvidXchange’s businesses pay are already using a credit card network, so it’s usually “extremely enlightening” to them to find that vendors are receptive.
One key thing to note is that virtual cards do not have a different rate/fee schedule than regular cards. That just depends on the agreement that the vendor has with their merchant, said Rogers. Depending on the company, and volume, there are negotiations that can be made.
THE BENEFITS OF AUTOMATED PAYMENTS
Below are the key benefits of automated payments as Rogers presented them:
- Security: No stealing checks from the mailbox, or creating fraudulent paper checks. If sent electronically into account, the payment is more secure, said Rogers.
- Visibility into payment type/status
- Escheatment: Every state in the country has some sort of unclaimed property law. If a business has an uncashed A/P or payroll check, or has let a bank account go dormant, and has cut a check to someone and they haven’t cashed it, it’s their responsibility to follow up with that vendor. That can be a tedious process. “Paying electronically with ACH or cards takes this off the table – one less thing that you or accounting department has to worry about,” said Rogers.
- Variety of vendor payment types
VENDOR PAYMENT VARIETY: THE KEY TO ADOPTION
Adoption is driven by the vendor, said Rogers. AvidXchange works with these vendors directly to find out what payment methods they have available – AvidXchange has a robust vendor services team to explain different payment methods, like AvidPay Direct, an enhanced ACH program, and AvidPay Vcard, a virtual card or a one-time, single-use credit card number.
AvidXchange, said Rogers, educates clients, letting them know why paper checks are not ideal these days. Again, it’s about having that financial management understand that they’re not losing control, and can still approve payments as usual -- they’re just clicking a button as opposed to signing.
“Some companies are resistant to that, but once we can show them through demos that this is more secure and accepted by auditors, it just comes down to changing the mindset,” said Rogers.
Because there are players like AvidXchange in the market, vendors are now given more of an opportunity to choose payment methods because buyers can be more flexible – they have more choices.
So what is the process, asked Webster, from beginning to end, if a business is ready to take the plunge and get rid of their paper-based process?
“Our sales team will start by informing clients of different types of payments, what the steps are in terms of which vendors will accept which payment method, and will tell them which percentage of vendors are already signed up to receive virtual cards. We let them know that it’s widely accepted, that the mindset has changed, and that our team continues to work with new vendors all the time,” said Rogers.
“In the beginning, we get a little pushback, but when we talk about the benefits, they really start to understand the importance of it all.”
As the conversation came to a close, Webster asked Rogers how long she thought it would be before we talk about checks in the past tense.
“I think in probably the next 5-10 years. But are paper checks going away entirely? Probably not. More and more vendors, however, now understand that it’s in their best interest to move digital.”
For more information on B2B payments’ journey from paper to the cloud, view the full digital discussion below.