B2B Payments

How Email, Checks Sabotage Faster Supplier Payments

The buyer-supplier disconnect in how payments are made and received is a predicament at the cornerstone of many innovative B2B FinTech solutions.

Buyers have their own preferences in how they want to pay, and they typically want to wait to settle their invoices to hold on to their cash for as long as possible. Suppliers, though, often want to be paid differently than how buyers pay — and want that cash quickly.

The newest research from Receivable Savvy, a company working to educate suppliers on accounts receivable (AR) best practices, finds that getting paid faster is the number-one priority among suppliers today when it comes to how they issue invoices. In fact, 90 percent of surveyed suppliers cited this priority.

The 2017 Perceptions Study — Analysis of Invoice-to-Cash Practices and Preferences of Supplier Organizations report, released this week, is chock-full of data on how suppliers handle the AR process. In a recent interview with PYMNTS, Ernie Martin, founder and managing director at Receivable Savvy, waded through much of the statistics on supplier payment preferences and invoicing behavior. He now has a roadmap for how suppliers can achieve that top goal of getting paid more quickly.

A key part of getting paid more quickly is electronic invoicing. But in the past year, non-eInvoicing practices have actually increased. According to Receivable Savvy, 76 percent say they submit paper invoices through the mail, while even more — 78 percent — do so via email.

This finding was of particular interest to Martin, because it likely signals a misconception that emailed invoices are equivalent to electronic invoices.

“An invoice sent via email, whether you have an ERP system or a traditional cut-and-paste in an email, it’s going to go to the customer, who will then likely have to print it out and manually input that into their accounting system,” he explained. “Although it’s considered ‘paperless,’ on the supplier side, it’s not paperless by the time it gets to the customer. That’s where the disconnect occurs.”

The payment rail through which these invoices are paid, too, is often backing up payments to suppliers.

Receivable Savvy’s report found 87 percent of suppliers receive payment via paper check, with ACH coming in second (72 percent) and card in third (61 percent). That’s despite 59 percent of suppliers saying their top preference is ACH, and about a quarter saying they prefer to be paid via check. Only 7 percent say they like to get paid via card.

Suppliers appear to be working towards facilitating their customers’ payment habits, with 50 percent reporting they have focused on accepting cards in an effort to improve the timeliness of customer payments. But that begs the question: Do suppliers have the power to influence their own customers’ payment habits?

“The short answer is yes, but it depends on a few things,” Martin said. “It depends on whether or not the customer is set up to accept electronic payments, or is a proponent of doing so. It also depends on the type of supplier the customer is working with.”

For many corporate buyers, he explained, their supplier base consists of thousands of suppliers — and only a small fraction of them are large suppliers considered to be strategic partners to the buyer. The “long tail,” the executive explained, consists of the rest of suppliers that are often smaller, with less influence on buyer payment habits.

Further, suppliers not only need to get on-boarded to electronic payment rails like ACH, but they also need to convince their customers to take the time to do the same.

“The supplier has to create that process in which they can accept ACH payments. That requires some doing and working with their banks, and some suppliers have been slow to do that,” said Martin.

Perhaps the largest hurdle to overcome, though, is psychological.

While suppliers want to get paid faster, amid all of the paper invoices and paper checks, they also have an attachment to physical documents.

“A lot of suppliers say they like the feel of the paper in their hand, they like to get the physical remittance data attached to that check — even though you can still get that data in other ways, including with ACH,” Martin explained. “But a lot of suppliers are what we consider old school. They like the feel of the check in their hand. It’s the same thing with invoicing: Some suppliers say they’d rather send out the invoice in the mai or email it as an attachment. They want to physically see it going out. That’s very psychological.”

That’s not to say suppliers are ignoring the opportunity to get paid faster. About three-quarters of suppliers told Receivable Savvy they take advantage of immediate payment discounts when available, while about a quarter say they also take advantage of dynamic discounting, supply chain financing and factoring. Most suppliers said they have some form of an internal process to determine when and how early payments are accepted.

But according to Martin, AR professionals, and the enterprise as a whole, must be strategic if they are going to actually be paid more quickly.

“The first thing they should do is automate their invoicing process,” he said, adding that even if a supplier doesn’t deploy a full-on electronic invoicing solution, they can get still invoices sent much more quickly and automate data entry into their accounting systems.

“The second is to make sure you have electronic payment set up,” Martin added. There may be fees associated with wire, cards and even ACH, he said, but ACH is “the best way to get paid — especially now that there is Same Day ACH.”

Finally, Martin noted, suppliers have to look at the money.

“Make sure you’ve got a robust cash application process in place,” he said. Even if a supplier is receiving paper checks, there are ways to automate deposit and reconciliation to reduce the number of days suppliers wait to see funds.

As AR executives expect to be paid via ACH more frequently than by check in only a few years — according to separate research by NACHA — being able to quickly accept those payments and more efficiently send out the bills will only accelerate the time it takes for a supplier to get paid. This will be a critical achievement for proper cash flow management.



The pressure on banks to modernize their payments capabilities to support initiatives such as ISO 20022 and instant/real time payments has been exacerbated by the emergence of COVID-19 and the compelling need to quickly scale operations due to the rapid growth of contactless payments, and subsequent increase in digitization. Given this new normal, the need for agility and optimization across the payments processing value chain is imperative.

Click to comment