B2B payments do not exist in a vacuum. They're connected downstream to invoices and purchase orders, and upstream via accounting, reconciliation and financial management processes. So, when a business receives an invoice, one might think the mechanism through which that bill is processed, approved and paid for (and, ultimately, reconciled) is all closely integrated. Unfortunately, in many cases, that's incorrect.
The silos that add friction to B2B transactions in the invoice-to-pay space are copious, and exist both within organizations and between business partners. Businesses' digital transformations can help break down those silos, but the disruption of forcing eInvoicing and ePayments upon a company can often be more taxing than managing the existing friction of silos from outdated legacy processes and tools.
How does the B2B payments space move forward then? In a sense, by looking backward, said Payson Johnston, co-founder and CEO of Crowdz.
The company recently announced a new funding round by existing backer Barclays, with plans to use the investment to launch its Invoice Exchange solution. Johnston told PYMNTS in a recent interview that the platform aims to allow vendors to submit invoices, receive payments on those invoices and sell unpaid invoices to receive financing — three pieces to the same puzzle, but which are often disjointed and lack interconnectivity.
"When we look at B2B payments, companies that are manually processing paper checks and paper documents don't actually see the invoice at all," he explained. "There are pain points of 'how do you bring the invoice and the movement of money together?' — which hasn't really been solved yet in the B2B payments space."
In the back office, some of the biggest silos exist in ingesting an invoice and paying for it. The platform that sends out the purchase order isn't connected to the department that receives an invoice, and the professional who receives that bill isn't necessarily connected to the accounts payable department.
Similarly, on the vendor side, the mechanism that sends the invoice isn't necessarily the same one that receives the payment, or the one that initiates an invoice sale to obtain financing. Indeed, particularly within large, multinational companies, a multitude of departments and an array of platforms make data connectivity next to impossible.
"A lot of cross-intercompany organizations don't even have the same ERP systems," Johnston said.
Outside the organization, the barriers that prevent integration between buyer and supplier systems are vast as well. This can be a massive pain point when a large, multinational organization is working with a small or medium-sized supplier, the latter of which can often lack the resources to adhere to corporate customers' needs concerning the ways invoices are received and payments are facilitated.
"Take a Walmart, for example," Johnston said. "They have a certain [electronic data interchange (EDI)] standard, and it might cost a company $5,000 to $50,000 a month, depending on volume, to participate in an EDI program like Walmart's."
When each corporate customer has their own standards that dictate how a vendor can send and receive information with that client, the financial benefit of working with that partner falls by the wayside.
Dancing With Gorillas
The source of many of these silos is often organizations' continued reliance on legacy tools and processes: the paper check, paper invoices, EDI, faxes and PDF email attachments. While B2B FinTech is urging organizations to ditch these tools, Johnston said that, in some cases, the best way to address these silos is to allow companies to continue their invoicing and payment habits, and take a more gradual approach to change. For Crowdz, that means stepping in between these silos to create a connection, regardless of the technologies or processes in place.
"One of the biggest pain points is allowing for invoices that are digital to come into our system, but also allowing for those that are PDF, fax, EDI, and paper to come into our system as well," he said.
In the U.S., where paper checks remain prevalent, Crowdz is exploring ways to address this silo-inducing B2B payments method without forcing companies to give up their payment habits. Johnston said the company is working with a partner to enable electronic check payments, thus digitizing the payment without changing a firm's back-office processes.
There is another way that FinTech solution providers must be able to work with the old to usher in the new: collaboration with the traditional players. For Crowdz, that means a close relationship with investor Barclays, and the broader trends of FinTech firms working with, not against, traditional financial institutions.
Johnston pointed to a phrase coined by Shameen Prashantham, associate professor of International Business and Strategy at China Europe International Business School, that illustrates this trend: "dancing with gorillas." It's the ability for a small business to work with a multinational corporation, or for a small FinTech to collaborate with a global bank.
"It's really [banks] looking at how to push the future and not get left behind," Johnston said. "I see the 'dancing with gorillas' term as really important to this whole process."