B2B Payments

The Middle Market Gets A Jump-Start On Spend Management

Business-to-business (B2B) transactions remain full of friction. However, in the procure-to-pay process, some of the biggest challenges occur before any transaction is initiated.

For the middle market, a high volume of supplier spend introduces the need for a sophisticated spend management strategy that can ensure transactions comply with internal rules, and that companies obtain the right price, on the right products, with the right vendors. Despite these enterprise-level needs, though, the middle market often lacks enterprise-level resources to invest in such tools.

Stanton Jandrell, CEO of spend enablement firm Fraxion, said that’s why access to data is essential to ensure payments are done right — before they occur. Of course, that doesn’t look the same for every business. In the evolution of spend management, Jandrell told PYMNTS, solution providers must take context into account when advising business clients on how to spend their money.

“It’s no longer just about control,” he said. “It’s more around presenting data, and observing data we have, to advise you on whether you should be incurring spend or not.”

Not only does that mean halting a transaction that does not comply with internal controls on spending limits of vendor restrictions. It means presenting information to a manager in the case of transactions that must be approved, and mitigating risk that can come in a variety of forms.

Again, though, addressing spend risk does not look the same across organizations.

“We try to understand spending behaviors that are abnormal for the [particular] organization,” Jandrell explained.

That could mean identifying a group of invoices that, when combined, exceed the value of a transaction allowed with a single vendor. It could mean flagging a series of transactions to a new supplier, or catching duplicate or erroneous invoices sent by a vendor. Analysis must be made at the line-item level, taking into account the value of an invoice, product category and description, approval routing, budgetary restraints, supplier relationship and even the level of the employee who initiated the spend.

With so many metrics and factors at play, data analytics becomes an integral part of developing a spend management program that is unique to the business using it. However, Jandrell also noted that this focus on data can benefit the industry’s procure-to-pay practices as a whole.

The data Fraxion has available can provide visibility and guidance into not only whether a purchase is appropriate, based on a company’s particular scenario, but into how that purchase compares with similar purchases that other businesses in a similar situation have made. It can also guide the vendors on how to negotiate with their buyers — Jandrell noted that Fraxion is developing a selective invoice discounting program, for example, that enables suppliers to obtain data related to their corporate customers and offer payment terms accordingly. Obtaining data and visibility into a transaction’s approval and likelihood of payment means a lower risk profile when offering financing on that transaction.

Increasing the sophistication of data analytics technologies has enabled Fraxion to do more with that data. Jandrell said the company’s solution that analyzes historical patterns to predict general ledger coding for a purchase will be able to go from about a 60 percent to an 80 percent accuracy rate toward a 95 percent accuracy rate as a result of technological innovation.

Today (May 14), Fraxion is announcing its rollout in the U.S., following its merger with eProcurement software company eRequester. As it grows globally, the company will be exploring additional use cases for the data within its systems, further expanding the function of spend management with an organization as technologies like machine learning enable new levels of data analytics.

“For us, spend enablement is evolutionary,” said Jandrell. “What kind of insight could we get out of this data that could help [companies] spend less, or make the approvals process more efficient? That’s spend enablement. And for a long time, we haven’t had access to the kind of computer capability that we needed to execute on some of our strategies.”

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