The last few months have been ones of marked change for B2B payments, and the rise of embedded finance points the way for what’s to come in 2024 and beyond.
Chris Wyatt, chief strategy and product officer at Finexio, said the B2B space traditionally has lagged consumer-facing innovations. But the gap is narrowing. We may not see the actual demise of checks anytime soon, but faster payments and improved communications between buyers and suppliers will do much to cut down on the reliance on paper-based payments.
Changes that have been impacting commercial payments — and will shape them in the years to come — have been tied to the growing enthusiasm for real-time transactions, especially since the FedNow® Service launched at the end of July, he said. Elsewhere, data-rich messaging has improved remittance information sent between companies, which has improved the transparency of the payments themselves.
“Previously,” he said of B2B payments, “you sent it, hope that it got there … and hope you’d get some information back to say, ‘That check was cashed,’ or ‘The merchant authorized that card.’”
Now, he said, the “full lifecycle” of the payment can be readily examined by both parties and is a significant improvement over the days-long settlement and friction-filled notification flow that have been hallmarks of ACH and even wire payments.
The rise of embedded finance, he said, has made it easier for buyers to order the inventory and materials they need from suppliers and settle invoices within the “same ecosystem” where they bought those items. Payments orchestration platforms offer accounts payable (AP) services so that client companies no longer need to mull how payments are sent out.
Although not all B2B segments will have the need for speed that FedNow (and The Clearing House’s RTP network) promise, the potential is there for enterprises to use faster payments as a cash management tool, said Wyatt.
Some firms, he said, “will hang onto their cash until the very last minute but will still be able to get payments out in a timely manner.”
The digital payments and ecosystems are also more secure than paper-based checks — nothing gets lost in the mail — which will in turn incentivize companies to modernize their payments practices, he said. Suppliers are increasingly telling their buyers that they no longer want to accept checks, and buyers must find ways to comply with those wishes.
As 2024 dawns, we’ll likely see an increasing number of providers broaden their payments services for buyers to help hasten the shift away from the paper check, Wyatt said. The use of virtual cards will proliferate, tied to enterprise resource planning (ERP) and accounting software so that reconciliation is automatic and error-free.
No discussion about the technological improvements of B2B payments would be complete without a nod toward artificial intelligence (AI) and machine learning (ML). Wyatt noted that these advanced technologies, as well as blockchain, will be essential over the long run for improving security and monitoring commercial payments as they cross borders and move up and down supply chains.
The paper check has been stubbornly entrenched and may always have adherents, said Wyatt. But with the range of new technologies, services and faster payments in the mix, the positive impact of digitization will be impossible to overlook.
“If you ‘electronify’ more of these [activities],” he said, “it’s cheaper, faster and safer for many of the links in supply chains.”
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