For years, any attention given to solving B2B payments friction was typically focused on the payer. Yet, as innovators have chip away at friction points, they have recognized the value of incorporating a supplier's accounts receivable (AR) experience into their solutions.
That's because AR and accounts payable (AP) processes are intrinsically connected. Pain points experienced by B2B vendors when collecting cash will inevitably seep into their own AP processes. Furthermore, the challenges faced by suppliers when collecting payments can mean additional friction for their payers.
However, according to Citi’s Global Head of Payments and Receivables Manish Kohli, the intertwined nature of AP and AR also presents an opportunity for service providers in search of solutions. Addressing friction on one end can often lead to an easing of pain on the other, Kohli told Karen Webster in a recent interview — and progress in accounts payable efficiencies have guided the ecosystem to search for accounts receivable efficiencies as well.
"The time is ripe now, [as] clients are encouraged by the efficiencies they've been able to bring around the accounts payable process, [and] around their working capital cycles. And now, they're looking for efficiencies on the receivables side, too," he said.
Rethinking The Receivables Challenge
Addressing cross-border receivables friction is about more than just ensuring that a supplier gets paid. Kohli pointed to the added benefits of incoming cash-flow predictions, enhanced invoicing and reconciliation capabilities, and stronger engagement with a vendor's client community. However, that understanding has not traditionally been the focus of B2B payments service providers.
"Historically, receivables have not seen that level of innovation because it's always the belief that the person who makes the payment controls the method of making the payment," explained Kohli. "The person receiving it is just happy to get paid."
Rethinking the global payments conundrum from the supplier's point of view can raise awareness of the possibility that when receivables friction is eased, payables friction is also eased. Kohli offered the example of two business partners trading between the U.S. and Turkey. If a B2B vendor is able to standardize the way it presents invoices, and offer flexibility by supporting payments made in either the buyer or seller's local currencies, the cash flow between buyer and supplier becomes smoother for both sides.
A New Approach To Global Payments
Solving for accounts receivable friction comes with no shortage of obstacles, however. As businesses more easily expand and trade across borders, friction points multiply.
"When you talk about cross-border, that need for efficiency becomes more pronounced because of the complexity in connecting across geographies," Kohli said.
Foreign exchange (FX) is undoubtedly one of the biggest hurdles. When B2B partners are trading on 30-, 60- or even 90-day terms, currency valuations can vary significantly from when a business receives an invoice versus when that invoice is paid.
Currency fluctuations and a lack of FX transparency can also prohibit a supplier from knowing exactly how much it will receive when clients pay in different currencies. The ability to track and predict that incoming cash flow is yet another hurdle made more formidable by geographic boundaries, Kohli added.
Yet, when approaching cross-border corporate payments from a different angle, problems — and their solutions — may seem clearer.
"My belief has been that a cross-border payment is actually a synthetic construct," he said. "It's nothing more than two domestic payments, with FX in between."
The Power Of Collaboration
Tackling B2B payments friction from the supplier side — and approaching cross-border payments from the point of view of domestic transactions — introduces a new recipe for solving cross-border corporate payment challenges. That's the approach Citi has taken with its newest service in the ecosystem.
The Citi Global Collect solution is designed to address B2B vendors' global collection pain points, including the capability for them to gain greater transparency and predictability into when (and what amount of) funds are coming in — not only when payments go out. This enables more robust cash application planning. Citi Global Collect, a collaboration between Citi’s Treasury & Trade Solutions and FX businesses, is also designed to help multinational clients continue to extend their global reach, making it easier to collect funds from overseas payers and apply cash faster.
Kohli highlighted features, including the ability for business partners to lock in FX rates, or to allow a company to choose whether to pay an invoice in its local currency or the seller's currency. These are not only key to easing cash flows, but promoting stronger, more strategic ties between buyers and suppliers.
Several weeks after its launch, the tool's early interest has been seen from players in the services industry — such as a company that invoices for royalty payments across borders, members of the freight and logistics sector, IT and data service providers, and one member of the public sector seeking to facilitate student loan repayments while remaining tax-compliant across borders.
While Kohli hopes the Citi Global Collect platform will promote stronger collaboration between buyers and suppliers, he also emphasized the role of collaboration in development of the solution — specifically, Citi's partnership with HighRadius to integrate robust FX functionality within the portal, and, on a broader level, to "reimagine the synthetic construct" of cross-border payments friction.
As Citi continues to build out its solution set, with its sights trained on B2B payments friction from multiple angles, Kohli noted that a collaborative approach will be key.
"Payments is a team sport," he said. "The best way to solve problems for our clients is to work in partnerships."