What do businesses want for the holidays? It’s simple: to get paid faster.
B2B payments are the global economy’s transactional workhorse, accounting for tens of trillions of dollars. But traditionally, B2B payments have been characterized by a much slower payment cycle compared to their B2C counterparts.
In fact, a trillion dollars is estimated to be locked up in outstanding B2B receivables and paper-based processes.
Only now, with soaring interest rates and a cost of capital not seen in decades, timely payments and efficient working capital management have become imperative.
Money in hand is king, and this reality is re-incentivizing the B2B payments space and re-shaping dynamics between buyers and sellers, as the imperative to be paid faster is becoming a strategic priority for businesses across industries.
Fortunately, advances in payments technology and modern digital solutions — from automated order-to-cash and source-to-pay processes to flexible and innovative credit and financing tools — are making sure that businesses aren’t navigating today’s macro environment alone.
Still, despite decades of investment in digital technology and innovation, the maturity of B2B payments programs increasingly remains varied across businesses of all sizes.
After all, while eliminating manual processes tied to cash management and improving accounts payable (AP) and accounts receivable (AR) functions may appear to be an obvious step to take, modernizing entrenched legacy systems and processes is not as easy as flipping a switch.
But there has never been a better time for firms to think about starting small and working their way up.
Read also: Businesses Give Commercial Cards a Fresh Look
Drew Edwards, CEO of Ingo Money, told PYMNTS that amid the current, and sustained, backdrop of higher-for-longer interest rates, “[there is a lot of interest] in the marketplace around the question of turning payments into a money maker as opposed to a cost center.” Treasurers and other finance professionals, Edwards said, are weighing the costs of issuing and accepting paper checks versus other faster (and online) payment options such as virtual credit cards and push-to-card transactions.
According to findings in the PYMNTS Intelligence study “Unlocking Modernized Accounts Payable With Virtual Cards,” legacy B2B payment methods like the paper check increasingly cause numerous delays and complications for AP teams, invite potential security issues and raise the risk of delays, errors and fraud.
And from a simple money-in, money-out perspective, paper checks just won’t cut it in today’s environment where the faster a payment is received, the more transparent cash flow can become.
Electronic B2B payments not only make reconciliation easier for both sides of the transaction, but they also eliminate the uncertainty of “when will I get paid” inherent to waiting for a physical check in the mail, or refreshing an account to see whether one has been cashed yet, Ernest Rolfson, CEO and founder of Finexio, told PYMNTS.
“Whether you are on the buyer side or supplier side, the CFO’s job is to manage cash flow — making sure we are accelerating inflows and not paying anything before we absolutely have to pay it,” Bob Purcell, CFO of Billtrust, told PYMNTS CEO Karen Webster in May.
Clearly, digital solutions are the way for faster, more secure, and efficient payment processes.
More like this: Cut the Check: How Paperless Progress Future-Proofs B2B Payments
The higher cost of capital is acting as a powerful catalyst for change in the B2B payments space. Firms are reevaluating their payment processes, recognizing the strategic importance of modernizing their AP and AR functions, as well as the benefit it can bring to their commercial relationships.
“Higher interest rates create a sense of urgency around ‘where can we save a bit?’” Sezzle CEO Charlie Youakim told PYMNTS. “What receivers want now, and payers want, is predictability. Nothing’s better than having the money today, but having the certainty of knowing it will be there at some later date is almost as good.”
Commercial cards, especially those that offer working capital benefits and rebates, are becoming integral to these discussions.
“If you think about it, every transaction on a commercial card provides the buyer approximately 45 days of working capital plus a rebate,” Seth Goodman, chief revenue officer at Boost Payment Solutions, told PYMNTS. “It’s a win-win for both sides, which is really driving the industry.”
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