The B2B payments space has been patiently biding its time for its turn in the payments innovation spotlight.
Ever since the launch of the iPhone more than a decade ago, the combination of mobile apps and the internet – and its potential to reinvent the consumer's relationship with retail payments – has captured the time, attention and investment capital of the payments ecosystem.
It’s a story that Mike Praeger, CEO of the B2B payments company AvidXchange, knows well.
Now, in its 18th year in business, Praeger jokes that he shakes his head when the company he co-founded in 2000 is still referred to as a “startup.” It does, however, underscore the challenges of getting scale when innovating in the B2B sector.
“In a simple word, it's really hard,” Praeger told Karen Webster in a recent conversation. “It's difficult to develop the solutions that a business truly needs to automate its payments processes. Then it takes time for businesses to get comfortable with the idea that they need to change, particularly if that business is an SME – a business that pays [or] processes more than 100 invoices a month.”
All of these things are at the heart of the news that Praeger and AvidXchange are breaking today, with the launch of AvidXchange’s Purchase To Pay. Building on the firm's acquisition of Ariett last November, the solution addresses one of the most difficult challenges within B2B payments: breaking down the internal business siloes that separate invoicing from payments and purchasing.
AvidXchange Purchase To Pay combines AvidXchange's existing accounts payable capabilities with Ariett's vendor contracting, pricing and terms, and purchase order management – all things that occur well before a B2B transaction ever becomes an invoice. Purchase to Pay eliminates the silos – and the multiple vendor relationships involved in managing suppliers, purchase orders, invoicing and payments – and puts them into one flow that helps SMEs manage their payments process from beginning to end.
“All of this is much more difficult than on the consumer payments side of things,” Praeger explained. “Consumers don’t have to integrate with their accounting system each and every time they want to buy something. In the business world, transactions are driven by core accounting systems.”
AvidXchange customers are those in the middle market, well past the threshold of only a handful of invoices and payments processes on a monthly basis. Larger volumes of documents and transactions mean complicated integrations of all of these business processes, Praeger explained. That includes integrating data from all of these processes into core accounting systems.
“Once you enter the mid-market, you have to be highly integrated into core accounting systems,” the executive said of customers' needs. “Today, we integrate with over 140 accounting systems. It took us 18 years to build those integrations.”
That path, he added, highlights the slow and steady nature of B2B payments innovation. It takes time to raze siloes, build integrations, and add new capabilities to support all of the processes involved in a business-to-business transaction.
Problems, Praeger said, that have also been with corporate clients for decades.
As he pointed out, that's why some of the biggest disruptors in the B2B payments space are the ones that have been around for some time, those that have been grinding away at integrations and added capabilities for years, often well ahead of corporate demand for them.
Tapping into that demand is getting easier, Praeger said, since innovations in B2B payments is not an entirely foreign concept.
The largest driver today is the desire to step away from paper.
“They ask, ‘Why am I still printing paper invoices, sending paper checks?’ That's the number-one driver," said Praeger. "The second is around controls. One of the biggest catalysts for people coming to us is that they have had some type of fraud event. Paper is ripe for fraud. It's manual, and people are touching it at every step of the process."
Another driver is being able to accommodate the supplier’s request for how to be paid. According to Praeger, unlike SMBs and larger enterprises, the middle market typically sees suppliers gaining control over how they are paid.
“In the SME world, the suppliers really have the power. In the middle market, very few companies have enough concentrated value with a supplier to dictate payment terms,” Praeger said, “In the upper-middle market, a buyer may have control and can dictate how to pay a supplier. In the middle market, we don't see that dynamic.”
This means B2B payments solutions must be robust and agile enough to support all of the payments rails through which a supplier wants to receive payment. Complicating matters is that for each vendor, the preferred method of payment often varies based on order. Praeger noted that this could mean, for instance, a vendor would like to be paid via virtual card for transactions up to $1,500, via ACH for transactions between $1,500 and $5,000, and via wire for anything larger.
What's more, he said, corporate buyers don't want to have to manually decide which payment rail to use.
“When we created our payment platform in 2011, what middle market customers told us is they want a payment process to be transparent, and they don't want to manage payment type,” Praeger said, adding that the company is also investing in machine learning and robotics technology to not only support automated payment rail decision making, but to automate the process of inputting transaction data into the portals chosen by a vendor.
Technology certainly enables continued progress in B2B payments disruption, but perhaps one of the largest hurdles remains convincing entire corporate teams to make the leap.
“This doesn't happen quickly,” said Praeger. “You have to convince a CFO, a controller and a chief accounting officer to change their key back office processes. There has to be a lot of trust.”