Growing awareness of the cash flow pain caused by late B2B payments has led to increased calls to incentivize, and in some cases even mandate that larger corporates accelerate their invoice payment processes when working with small suppliers.
It's an important step in promoting accelerated invoice-to-cash cycles and connecting vendors with the capital many smaller businesses so desperately need, particularly in the current climate of coronavirus-fueled volatility and uncertainty.
But a new research report released this week from 3Gem, commissioned by Amaiz, has revealed another facet of the late B2B payments problem: micro businesses in the U.K. are missing out on a collective $2 billion because they are forgetting entirely to send out an invoice to their customer. In all, more than one-third of businesses surveyed admitted to this slip-up.
Acknowledging that delayed and late B2B payments is not solely caused by poor payment behavior on the customer's end is an important piece of optimizing the accounts receivable (AR) process, according to Alex Louisy, co-founder and CEO of France-based FinTech Upflow, who said that the notorious spreadsheet is often to blame.
"They're using Excel spreadsheets to manage outstanding invoices and receivables," he told PYMNTS, adding that the platform offered by Upflow aims to offer a simplified, automated tool for organizations to understand what invoices they have sent out, which have been paid, and which remain outstanding. "It's basic, but this is 10-times better than doing what most B2B businesses out there are doing — which is sending an invoice to a customer, and then waiting to get paid, and when this doesn't happen, not chasing the customer down for payment."
The late payments discussion should expand beyond the focus of nefarious corporate payers and peer deeper into the consequences of non-automated and poorly-optimized collections practices, he said. More often than not, B2B suppliers site "a glitch in the process" of sending invoices and collecting payment — for example, missing or incorrect information on an invoice, or forgetting to attach an invoice to a purchase order — as the cause behind payment problems. Delayed payments could even be an indicator that customers aren't happy with your service, he warned.
"If you only had bad payers, you'd not be working with those customers at all," he said.
Tackling AP Friction Through AR Technology
As the B2B payments technology ecosystem increasingly becomes aware of the intrinsic connectivity between AR and accounts payable (AP), solution providers develop new tools with the understanding that one side of the problem cannot be fixed without addressing friction on the other end of the transaction.
"Unless someone brings a 10-times-better user experience to both sides of the transaction, it’s not going to improve," Louisy said.
He noted that it was important for Upflow to not only operate as an AR solution, but to also solve friction for FinTech's customer's customer — allowing those business payers to interface with a technology that can make it clear which invoices from a single vendor they have received, and which remain outstanding.
This simplicity reduces even more barriers for vendors to get paid, he said, pointing to Upflow's integration with Stripe to support payment acceptance at the point of invoice receipt (the company currently supports card payments, with plans to accept bank transfers through a future integration with Plaid). Rather than forcing organizations to let go of paper check, Louisy said FinTech solutions must provide a better experience so that business payers choose to change their payment behavior for the better.
But solving AP friction isn't only about accelerating invoice payments. Increasingly, cybersecurity risks target the AP function, especially as more businesses rely on email to communicate with vendors and coordinate payment plans. Data security within platforms like Upflow is paramount to combatting B2B payments fraud, he added.
Enacting Permanent Change
Changing B2B payment behavior goes far beyond accelerating a corporate customer's payment practices. Indeed, increasingly, collaboration is a critical component to optimizing the invoice-to-cash cycle.
For instance, Louisy acknowledged that some businesses many not want their sales personnel worried about whether a customer is paying or not. But understanding client payment practices can guide a sales team in targeting the customers most likely to pay onmtime, which can instill more effective marketing, sales and collections practices all at once.
The B2B payments ecosystem as a whole can also benefit from collaboration, with Upflow offering an API to not only facilitate integration with back-office platforms like QuickBooks to ensure data accuracy, but also enable other technology providers to tackle similar points of friction within their own platforms.
It's been a long time coming for supplier payment practices to improve by changing behavior on both the AR and AP side of B2B transactions, said Louisy. But especially now, with cash collection vital to the survival of small businesses everywhere, businesses are open to making meaningful change that could last well after uncertainty over COVID-19, the disease caused by the coronavirus, has settled.
"In the last year, there were a lot of people raising money, and businesses were issuing invoices and not even spending time to collect," he said, adding that he feels sad that it's taken such a dramatic market event like COVID-19 to initiate change — but that there could be a silver lining. "I hope if the market goes back up again, and everything goes back to normal, we can still keep that in mind, that collecting cash in a good and healthy way is the proper way to do business."