Buyers want to take their time to pay. Suppliers want to get paid quickly. In between lies inefficiency — namely, the (paper-based) ways in which the payments themselves are done. In an interview with Karen Webster, Flint Lane, CEO at Billtrust, said buyer-supplier dynamics are changing — for the better — but there are pain points to address first. First — get rid of the checks.
B2B payments are marked by an eternal struggle.
Buyers want to take their time to pay, to hang on to cash as long as possible. Suppliers want to get paid quickly. In between lies inefficiency — namely, the (paper-based) ways in which the payments themselves are done.
High DSOs — And Chasing Late Payments
The discussion came amid the backdrop where days sales outstanding (DSO), according to PYMNTS, have increased across the board — overall, by about 7 percent. Drill down a bit, and average DSO have been notably on the rise in verticals such as construction (up 10 days to an average 53 days) and healthcare (up seven days to 49 days). In fact, as noted in the B2B Payments Innovation Readiness report, businesses that rely on manual accounts receivable (AR) processes tend to have 30 percent longer average DSO and take 67 percent longer to follow up on overdue payments.
Buyers have been grappling with their own cash flow issues, of course, amid the pandemic, and lack of automation makes for friction on both sides of the B2B relationship.
The coronavirus, not surprisingly, has changed buyer-supplier dynamics, said Lane. And in a B2B landscape where “the check’s in the mail” is a way of life, when the mail slows down and back offices and banks are closed, relying on paper to get paid can translate into cash crunches for suppliers.
Ignore the supplier at your peril, Lane cautioned, in an environment where the mail is 35 percent slower and 50 percent of $20 trillion in B2B payments are made via check.
Delivering A Great Supplier Experience
“I have found that on the AP side more and more of the software vendors are finding the necessity to deliver a great supplier experience or they’re going to see churn in their own payments numbers. Suppliers want to be flexible, but there are limits,” he told Webster.
As for those limits: with so many executives working from home — and with the pressing need to run their businesses day in and day out — we’re in the new normal that demands a pivot to ACH, to (some) digital cards, to automation.
Suppliers — at least some of them — have the power to influence payments change, Lane contended.
“It really depends on the supplier,” he said. The long tail of suppliers, those small and medium-sized businesses (SMBs), certainly do not have the power that the large ones do. Billtrust works with some of the biggest brands on the planet and they are routinely dictating to their buyers, in Lane’s words, that “‘This is the way you can pay me. You can pay me through my online portal, you can pay me through the business payments network. I’m not going to take your virtual cards via email anymore.’”
The shift in the buyer-supplier dynamic has been notable after a longstanding trend, where, as Lane explained it, “before, suppliers were pretty much doing anything the buyer would tell them to do … typing invoices into buyer portals, receiving payments the way they were told.” But through the past several months, the churn has increased. Lane noted that among the most common forms of payment, the virtual card delivered by email has been a particular pain point.
Suppliers are baking added costs of card acceptance into their business models, he said, boosting the prices charged to keep gross margins intact.
In terms of mechanics tied to virtual cards and the manual processes that demand automation, Lane explained that most accounts payable (AP) departments are delivering payment instructions to the supplier — sometimes just half of a credit card number.
“A supplier has to log into a website to get the other half of the card number, they then have to run that transaction through a device,” he told Webster. “Then they have to open a remittance file and apply that to their ERP.”
Amid the pandemic, he continued, suppliers now have staff who are working from home and have to log into all those portals. Before, he said, “It was probably some kind of password-protected spreadsheet of all the user IDs and passwords for that process. So now they have to access that secure document from a home environment, with all those emails coming in. Maybe they’re all sharing one inbox and trying to figure out how to process all of those emails. How do you do that from a remote environment?”
The ultimate goal is to create a seamless end-to-end payable/receivables process that modernizes the order-to-cash cycle.
Silos Within Companies
There exist barriers within companies, he said, where AP and AR are thought of as two separate departments, and two separate workflows with two investment streams to automate processes.
“We have many customers who complain about the problems AP is causing for them. ‘Oh my goodness. I have to key a hundred invoices into a portal.’ Meanwhile, their same AP department is investing in that kind of AP software and causing those very problems,” Lane said. Interoperability is the key to streamlining the workflow, he maintained, having more and more AR and AP departments talking to each other, constantly.
“There always is some fix-up required,” he said, across the cash flow cycle. If the buyer has keyed in bad invoice numbers, if they’re short paying and there are disputes, the process is not just about the payment. Remittance detail is essential in B2B, and that information has to be delivered as a unit into accounts receivable, or it creates exceptions on a regular basis.
But as the evolution of the B2B payments space continues, Billtrust, he noted, is seeing “astronomical growth” across card acceptance in its business payments network that launched three years ago, with recent expansions into ACH and wire.
In the bid to create a continuum across AP and AR, where buyers’ accounts payable operations link with suppliers’ accounts receivable systems with very little touch — hopefully no touch points at all — for now, best to not let perfect be the enemy of good.
Those two payments types, he said, have been traditionally viewed as being costly for corporates to accept. With a streamlined way for card, ACH and wire transactions to float from buyers to suppliers, he said, the company is on a trajectory to process as much as $6 billion in payments over the next 12 months alone.
Looking ahead at the B2B transformation, “If you want to participate in this transition from paper check to electronic, you’d better have a strategy to attack the paper check volume. So if you’re a card brand or somebody who has a vested interest in driving things to card you need a comprehensive strategy about attacking that paper check volume.”
As 2020 (finally) heaves into the rearview mirror, Lane noted that in the $20 trillion B2B market, “there was a digital transformation already occurring. This pandemic has certainly accelerated it, especially around payment acceptance.”