B2B Payments

Why B2B Payments Should Take A Page From B2C’s Playbook

How B2B Can Take A Page From B2C's Playbook

Call it a tale of two payments trends.

Or: It was the best of cash flows. It was the worst of cash flows.

The payments realm is a bifurcated one, where business-to-customer payments are increasingly marked by speed, convenience and instant transactions.

The business-to-business arena stands in glaring contrast – where, as noted in the latest Order to Cash Playbook, more than 90 percent of U.S. manufacturers report receiving late payments from clients. According to the data, those clients took an average of 57 days to pay.

The Ripple Effect

In an interview with Karen Webster, Brandon Spear, president at MSTS, said the stark differences between B2C and B2B payment speeds boil down to a case of having too many cooks in the kitchen.

 

As he told Webster, when it comes to B2B, “more often than not, there’s not just a single person who’s involved in the purchasing process.” Especially in larger companies, there are several people who are responsible for a range of activities spanning budgets, buying, invoicing and payouts.

Along the way, there may be a lack of alignment about what data should be on an invoice, which translates into confusion for buyers when it comes time to make a payment.

The lack of transparency in being able to match the right invoice with the right payable across the company causes a ripple effect, Spear told Webster, which bubbles up and hits manufacturers in the form of “a delayed payment and consumption of working capital that is entirely unnecessary.”

That working capital – if it were freed up rather than being trapped in the supply chain – could be deployed elsewhere, such as in efforts to grow the company through hiring staff or expanding into new markets.

If the ultimate goal is alignment between the seller’s and the buyer’s payment processes, it’s easier said than done, said Spear. As he pointed out, most sellers don’t have the wherewithal or technology to get all the needed data to their customers.

As Spear noted, it has become standard practice for a company’s largest customers to wield a significant level of power over payments – setting 30- to 45-day payment terms that ultimately are not followed (as shown by the 57-day average payment term). Most suppliers and manufacturers will adjust their pricing (upwards) to account for working capital that is consumed in the wake of those late payments – which, of course, makes things more expensive for everyone.

Rethinking the Channel

The manufacturing space, in particular, has seen what Spear termed the “re-assessing and re-evaluation” of distribution channels – where traditionally a middleman sits between the end customer and the OEM – amid trade tensions such as the ones between China and the U.S., as well as various other macro pressures. In some cases, manufacturers are setting up in Europe to better manage their businesses. However, these markets present language and regulatory challenges.

In many cases, OEMs want to get closer to their end customers to gain better visibility into their purchasing patterns. For other manufacturers, this may mean expanding corporate relationships from a few dozen distributors to thousands of smaller end users. Integrating with that many touchpoints can be a huge undertaking, impacting everything from processes to payments.

The emergence of eCommerce has also played a role in changing distribution channels, as manufacturers find that they don’t have the skillset to underwrite hundreds or thousands of prospective B2B customers, who can produce tens of thousands of invoices. Incidentally, many B2C companies have a B2B customer segment, and could better serve and grow that business by offering invoices and terms at checkout.

A key to accelerating commerce is getting customers to pay on time. As Spear told Webster, sellers may mull the advantages of tapping funding sources other than their own working capital, opting to get paid within a day or two of submitting an invoice (through offerings of firms like his)  rather than the stated 30- or 45-day terms.

Rethinking Order to Cash

Against that backdrop, thinking about order to cash in a different light requires an embrace of new technology that helps buyers and suppliers “meet in the middle” and expedite payments. The landscape has traditionally been fragmented, noted Spear, where through the past few decades, there has been a proliferation of procurement software on the buy side.

“But if you’re a seller, the dilemma you face is that across your customer base, you might have 10 or 20 different sets of procurement software, and you are faced with the challenge of trying to integrate with all of that,” said Spear.

For companies such as MSTS, there has been an opportunity to streamline the way data is provided to improve the order to cash cycle, so that information flows into buyers’ systems more efficiently.

As Spear noted: “Even if the existing distribution relationships stay the same and everything is sold through the same network, the payments data can provide an interesting set of insights to the manufacturer on what their customers are buying – and then pivot and adjust to market changes or variations in their customer base.”

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Social distancing has changed eCommerce from a ‘want to have’ to a ‘must have’ for businesses, yet retailers could struggle to create convenient payment and refund experiences for their apps and websites, says Abdul Raof Latiff, head of DBS Bank’s digital institutional banking group. In the April 2020 B2B API Tracker, Latiff explains how banks can provide a timely assist via application programming interfaces (APIs) that integrate payments into those eCommerce platforms.

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