Ensuring smooth transactions and managing payment flows to suppliers worldwide can be challenging for small- to medium-sized businesses (SMBs) — even without the pandemic dialing up the difficulties.
The health crisis has caused financial strains all around, making it even more important for SMBs to promptly pay their vendors, especially those that may be struggling. SMBs’ shifts toward enabling employees to work remotely have also made it more difficult for these businesses to maintain clear oversight into their payments.
Missouri-based Askinosie Chocolate, which has sold ethically sourced confections since 2007, has been tackling such challenges. The SMB trades directly and shares profits with cocoa bean farmers in four countries, importing the beans itself and making chocolate bars from scratch to sell to restaurants, bakeries, food stores and direct to consumers online. The 17-person company has to ensure that even farmers in very remote regions of the world — including the Amazon rainforest — can conveniently receive payments, and that it can handle transactions smoothly despite current market disruptions.
The pandemic has brought about new frictions, and SMBs have responded by examining their payment processes. The company’s CEO and founder, Shawn Askinosie, recently spoke with PYMNTS about the pandemic’s effects on transactions in the chocolate world and which accounts payable (AP) tools could become more important for SMBs.
Buying From Developing Economies
The pandemic has caused the commodity price for cocoa beans to fall and fluctuate wildly over the past three months, Askinosie said, raising serious concerns for many farmers whose compensation is based on this. Not knowing when prices may stabilize adds an extra layer of frustration.
“For cocoa farmers around the world, this is really bad,” he said.
Growers working for Askinosie Chocolate have been sheltered from this disruption, however, because the company already makes a point of paying significantly above market price and provides much of the money in advance of harvest, Askinosie explained.
“In 68 percent of the cases, we have provided payments to the farmers well in advance of receiving cocoa beans, which essentially means we’re giving them zero percent interest loans to finance the harvesting and post-harvest process,” he said.
Transacting with farmers in developing countries and regions like Amazonia, Ecuador, the Philippines and Tanzania can be difficult even during the best of times. Askinosie had to visit many of these farmers in person to help them obtain bank accounts, in fact, so they could receive international payments, which the chocolatier delivers via wires.
Askinosie said the company also went through some painful trial-and-error phases when determining how best to support farmers and other ingredient suppliers. He initially tried paying farmers entirely in advance but had to change that policy after two unfortunate instances, including one in which suppliers in Venezuela vanished with nearly $33,000 and no product delivered. The chocolatier now reserves a portion of the payment until cocoa beans reach their local shipping ports. It also has had to use credit cards and PayPal for other international ingredient purchases, where protections like chargebacks have proven to be important safeguards.
The Paper Versus Digital Debate
The SMB’s U.S. supply chains and sales still involve many paper-based transactions, with some of the confectioner’s vendors expecting physical checks, Askinosie said. Many merchant clients also want to receive their goods and the associated invoices at the same time, which then necessitates that paper invoices be included inside the shipping packaging.
Even the pandemic has not totally shaken vendors free from paper, and Askinosie said the continued reliance on physical checks may be due to both inertia and the fact that the ability to make mobile deposits of paper checks during stay-at-home orders reduces what otherwise could become untenable frictions. He still predicted that easy-to-use B2B payment apps could supplant paper-based processes, and that the pandemic-driven shift to remote operations could spur this transition.
“The methods that we’re using — especially now that we’ve been working from home for a long time — are antiquated. They’re ripe for renovation,” Askinosie said. “I have special concerns about financial transactions in a work-from-home environment — I don’t feel as though I have as much connection to it as I did when it was 25 feet from me.”
Business owners are more removed from their companies’ AP processes when staff are working in different locations, after all. Digital tools such as a B2B version of a peer-to-peer (P2P) payment app like Venmo could streamline processes and provide them with better oversight, Askinosie suggested.
“I’m finding that signing physical checks and putting a stamp on something — that’s like the Pony Express,” he said. “What I would be in need of is a method by which we could easily do a transfer that really small businesses were used to accepting.”
Getting SMB buyers on board with app-based payments systems would first depend on ensuring the solution has robust controls, such as the capability to set select authorization levels for different users and to create easy-to-reconstruct audit trails, he said. This would reassure businesses that there are defenses against embezzlement — a problem Askinosie said he has not encountered but of which he must still be cautious.
“When you talk about systems to make things easier, you also have to have a proportional set of tools to make controls also as easy,” Askinosie said.
He predicted as well that blockchain technologies could play a key role in helping businesses obtain this robust financial tracking.
Askinosie Chocolate is not alone in taking a fresh look at its payment methods. Seventeen percent of surveyed businesses in a recent study said the inability to get clear oversight into their outstanding payment obligations was a main source of friction associated with their manual AP processes, for example. Such pain points could be solved by incorporating digital solutions that simultaneously speed payment flows and offer firms greater insights into the data that accompanies them.
Providing convenient payments to rural suppliers in developing economies as well as U.S.-based vendors during the pandemic has been a demanding task, and keeping track of these payment flows has only added to the challenge. Paying close attention to AP processes and examining options to digitize payments could help SMBs as they work to make it through the crisis while maintaining strong supplier relationships and obtaining much-desired transaction visibility.