When it comes to payments, old habits die hard.
That proves especially true in business-to-business payments. The paper check game is an old one, entrenched in the interactions between firms. Stubbornly entrenched, some would say.
How, then, to un-entrench? How to streamline payments between buyers and suppliers who are unaware that new technology can significantly enhance operational efficiencies?
The frictionless exchange of goods and services between trading partners is frictionless only insofar as payments themselves are seamless. And the technology finally exists to make that happen; it simply takes some education to build awareness.
Boost Payment Solutions is one company that seeks to bring electronic payments to the B2B realm, as both an acquirer and a FinTech with an exclusive focus on commercial credit cards. In an interview with PYMNTS, Dean M. Leavitt, founder and CEO of Boost, told PYMNTS the firm is out to set (and be) the standard for B2B payments, encouraging the migration away from outdated methods like paper checks, wires and traditional ACH transfers.
“When you say ‘standardization,’ that’s an interesting concept in that presumably, the goal is to make it very easy for stakeholders to do what they need to do,” he told PYMNTS.
He likened his firm to a bridge between the accounts payable and receivable worlds as it relates to credit card usage and acceptance. Historically, there’s been an ocean between AP and AR, but in today’s age of big data and seamless reporting, that doesn’t have to be the case.
Leavitt added, “The ubiquity of ERP platforms has created an insatiable thirst for transactional data, so it is now imperative that a fully functioning electronic payments bridge be built between buyers and their suppliers.”
That bridge, he said, is lacking in the B2B payments industry, where inefficient payment methods abound. “We recognize the fact that certain card-based payment processes are cumbersome and that there are valid reasons why virtual card acceptance, while clearly growing, hasn’t seen the uptake one would expect given its value proposition,” said Leavitt.
The slower uptake is based, in part, on what he said is a “knee-jerk” reaction to virtual cards on the part of hesitant suppliers. “The response is often something like, ‘Why should I pay to get paid?’ or ‘Credit cards cost 4 or 5 percent and I don’t have that margin in this business’ or ‘I get one payment a month from this customer, what’s the point?’” But, as Leavitt pointed out, that one payment could be for $5 million representing 5,000 different invoices, which might take two people two weeks to manually account for all line item details if an antiquated payment method is used. And many believe injecting credit cards into the mix would make things even more difficult and costly. However, Leavitt said solutions are now in place that actually allow virtual card payments to drive down AR costs.
The problem is, card issuers, in their quest to secure new business, often build what Leavitt referred to as “bells and whistles” designed to differentiate their virtual card platforms. The functionality may look and sound appealing, but it often creates cumbersome, manual processes for suppliers to extract card data, process payments and close invoices. The solution: Find a better acceptance payment platform that provides the standardization for which suppliers are yearning.
PARS for a New Course
Getting past that knee-jerk reaction requires educating suppliers with what Leavitt termed the PARS approach, focusing on Pricing, Automation, Reporting and Security. Those, Leavitt said, are the four key factors suppliers typically analyze when considering commercial card acceptance. “It could be one of those elements that adds value; it could be all four; it is often a combination,” he told PYMNTS.
PARS brings to mind golf – and it should, with the implication that these are the strokes expected to complete a round of play. Think of it as a standard against which all players measure their performance.
With pricing, for instance, suppliers have traditionally used checks, wires, and ACH to move money, Leavitt said, often without fully accounting for both the direct and hidden operational costs those conduits carry.
Many suppliers, he explained, balk at interchange rates, believing them to be an unnecessary additional cost, when in fact card payments can provide considerable savings. Leavitt said he’s continually amazed by companies that readily offer a 2 percent early pay discount, but don’t realize that card acceptance might cost significantly less. He said one of the keys to expanding acceptance is to lead with low all-in costs. Through their platform, Boost Intercept, Boost looks to optimize payment data to provide discounted commercial interchange rates that are significantly lower than the 4 to 5 percent many people expect.
Automation also proves attractive against a backdrop of manual transaction processing and reconciliation. According to Leavitt, companies are now able to migrate to automated payment systems (on both the AP and AR sides of the fence) without any development work or implementation. The days of card payments being a time suck are over, as tech-based solutions – like straight through processing platforms, such as Boost’s – have made the processing and reconciliation of payments completely seamless and automatically integrated with existing systems.
The ERP system was once only the province of large companies, where significant investments were required. “Now, if you have a laptop with basic software applications, you essentially have an ERP platform,” Leavitt told PYMNTS, “and now every enterprise, regardless of its size, needs data to manage their business.” Gathering that data from paper checks or most ACH transfers is impossible, but with integrated card payment solutions, smart companies can harvest virtually unlimited data from every piece of the payment process. Reporting (the “R” in PARS) is essential.
Consider the $5 million payment representing 5,000 invoices. If that transaction were paid via ACH, wire or check, there may be no efficient way for the supplier to capture the line-item detail related to those invoices. Getting paid with a straight-through processed credit card payment via Boost, said Leavitt, would allow the supplier to easily ingest the data right into their AR system.
And that data is critical not just for analyzing money movement, but for every other facet of the company’s operations, including inventory management, resource allocation, business development and customer service, just to name a few. “You are virtually unlimited with respect to the type and amount of data that you can send and mine with commercial credit card transactions,” said Leavitt. By handling that data through automated processes, there’s a duality of “getting the money to where it is supposed to go … and making sure suppliers receive the remittance details in a format they can easily utilize.”
And finally, security, the “S” in the PARS acronym, may be the key to spurring virtual card adoption for B2B. Without adequate assurance that data is secure, “no one is going to change their behavior.” While many suppliers are forced to focus on how to safely process, store, protect, pass on or even destroy card data, Boost’s approach is to keep that sensitive information completely separate from their clients’ enterprise.
“We don’t let card data anywhere near the supplier, so they never have to think about compliance with respect to these transactions,” said Leavitt. He called this one of the key advantages of straight-through processing.
Said Leavitt: Commercial credit card acceptance no longer has to be a cumbersome or expensive “cost of doing business.” We’re in a new world of commercial card products, where costs are low, automation is complete and intelligent payment platforms can be an integral tool that allows businesses to out-perform the competition.