B2B Payments

Deep Dive: How Companies Are Balancing Paper-Based AR Payments In A Digital World

Executives are often hesitant to dismantle their firms’ established accounts receivable (AR) and accounts payable (AP) infrastructures to implement newer payment technologies.

Such caution is typically merited in B2B operations, where supply chains have been carefully cultivated to ensure long-lasting collaborations. Companies are finding that their payment processes have grown more complex to accommodate global, digital clients, though, with 73 percent of B2B buyers reporting that they have searched for purchasing experiences that mimic those in the B2C sector. This means failing to adapt to such needs can introduce frictions that frustrate working relationships.

Many firms are not ready to give up paper checks, however, especially as digital B2B payment fraud concerns grow more prevalent. They are therefore looking to tie check payments into digital networks that can more accurately track payment data, which often means sending digital invoices or using automated tools for faster identity verification once checks are finalized.

The data generated in routine payments through digital channels is expanding in volume, and firms want quick access to this information. This has prompted many to experiment with online systems for their AR and AP processes, but checks remain the familiar and expected choice for payments.

Checks have had an established role in B2B payments for decades, and that is unlikely to shift any time soon. Small- to medium-sized businesses (SMBs) believe digital payments are expensive and relatively untested, while they feel that checks — which account for 80 percent of B2B payments — offer clear benefits. This is largely because writing, issuing or processing checks is familiar and easy to understand. Creating a check costs about 82 cents on average compared to 13 cents for an electronic payment, but some firms find that checks fulfill their B2B payment needs better than digital options despite the added expense. Others use them because they do not possess the funds needed to transition to digital methods.

Many businesses cannot jump from established AR and AP systems to digital solutions, while other may not wish to make such shifts. Budgetary concerns, infrastructure issues and security worries prompt them to slowly and carefully approach such innovations. The following Deep Dive examines how businesses are responding to requests for faster transactions, experimenting with eInvoicing and online check-scanning technologies and finding ways to keep paper checks involved in B2B payments.

Digital Payment Cost and Fraud Concerns

Companies may be holding fast to check payments, but a 2018 survey found that 89 percent of firms planned to create or adopt digital-first business strategies. Those requiring paper documentation found it difficult to parse through essential data in a timely manner, particularly as their partners grew accustomed to the speed and ease of using digital solutions elsewhere in their operations. Services that rely on paper-heavy receipt, scanning and filtering processes now find themselves at severe disadvantages when competing with those that have adopted complementary digital tools, as the latter can quickly and easily categorize client information and payment data.

These digital tools have other benefits, too, allowing firms to continue using check payments when they lack the budgets to move to digital alternatives. Integrating digital payments can be expensive for SMBs that have not updated their infrastructure in several years. New payment rails offer more data, but this means they also require stronger security measures and significant upfront costs. Executives must weigh these expenses before completely replacing checks with digital methods.

There are other concerns that hold SMBs back from implementing newer payment processes, however. Digital payments can be subjected to fraud scams that differ from those targeting checks. Eighty-one percent of businesses were targeted with payment fraud scams in 2019, for example, with ACH credit fraud attempts accounting for more than one-fifth of that total.

Seventy-five percent of companies were meanwhile targeted by online business email compromise (BEC) attacks, schemes in which bad actors impersonate company officials, sending emails making fraudulent purchase orders or including false digital invoices to have these firms send funds. This type of fraud is often crushing for SMBs, with one recent BEC scam resulting in $7.3 million being stolen from a French pharmaceutical firm.

Many companies are now looking to pair paper checks’ benefits with those of digital AR and AP documentation solutions, which can help them avoid the costs and potential fraud that come with creating entirely new payment infrastructures. These shifts require firms to examine technologies like check scanners, online check conversion tools or switching to eInvoicing solutions or online AP products, which represent a $950 billion B2B opportunity, according to a 2018 study. Companies of all sizes are searching for technologies that can help them more quickly send out the necessary data and documents attached to those payments.

Digital Technologies Support Paper Checks

Firms are analyzing how tools like eInvoicing and check scanners can help them more quickly move payments. B2B payment documentation or identity verification processes are often more time-consuming than making payments, as the information involved must be reviewed and approved by multiple employees before checks can be sent.

Firms seek tools that can reduce the time required to complete these processes, with eInvoicing allowing companies to receive documentation much more quickly and store data on online servers. Companies like AR services provider Invoiced offer software solutions to upload these documents to the cloud, for example. These solutions then use automation to quickly review the invoice information, which enables human employees to view detailed data and finalize payments without having to manually find and process such details.

eInvoicing comes with some pitfalls, however. The U.S. does not have national standards in place for how AP departments can submit their invoices online, which can lead to confusion. Suppliers can send their invoices in numerous data formats, meaning companies will need to convert them into their own formats or standards — putting them right back where they started regarding time-consuming manual invoice processing.

Other technologies take paper checks and turn them into electronic checks, and such tools represent a progression for companies that want to provide partners with faster speeds and more digital support without completely overhauling their payment infrastructures. Electronic checks cost less to process than their paper predecessors and reduce delays between sending checks and seeing payments finalized, which could make them attractive to more businesses in the future.

Cost, lengthy processing times and payment frictions are major reasons companies should be implementing digital technologies, but businesses are searching for online solutions that still support checks. Firms must therefore go with the innovations that will help them create the most efficient supply chains in the shortest time, and for many, that still involves using checks.

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NEW PYMNTS DATA: HOW WE SHOP – SEPTEMBER 2020 

The How We Shop Report, a PYMNTS collaboration with PayPal, aims to understand how consumers of all ages and incomes are shifting to shopping and paying online in the midst of the COVID-19 pandemic. Our research builds on a series of studies conducted since March, surveying more than 16,000 consumers on how their shopping habits and payments preferences are changing as the crisis continues. This report focuses on our latest survey of 2,163 respondents and examines how their increased appetite for online commerce and digital touchless methods, such as QR codes, contactless cards and digital wallets, is poised to shape the post-pandemic economy.

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