Small and medium-sized businesses have been commended for their quick adoption of digital tools to help facilitate transactions with consumers, but on the B2B end digitization proceeds at an almost glacial pace. Nowhere is that more apparent than with the kinds of ad hoc payments companies make from time-to-time with suppliers they only deal with once or twice a year.
A new, yet-to-be-published study by PYMNTS in collaboration with Ingo Money has revealed a staggering 40% of small business sales are generated by non-recurring relationships with buyers. In such cases, the buyer almost always resorts to sending the supplier a check for a product or a service, amounting to trillions of dollars in sales that aren’t being paid instantly.
Ingo’s Chief Executive Drew Edwards told Karen Webster in an interview that getting paid by check in this day and age is the worst possible deal.
“Nobody chooses to get paid by check,” he said. “Because getting a check is not getting paid. You have to deposit it first, either a remote deposit or go to the bank personally and cash it. You have to do something to convert it into real money.”
One of the reasons why so many buyers persist with using checks is because they don’t have a whole lot of sympathy for the suppliers they send them to, Edwards said. At the same time though, he’s optimistic things may change slowly, because buyers are starting to realize they can make their own lives easier by adopting more modern payment methods.
“The check is archaic and it’s a pain in the butt,” Edwards said. “Although a company might not care much about helping out someone they only pay four or five times a year, they do care about fixing their own processes and getting rid of returned checks and lost checks and all of that.”
Edwards recalled how checks began to be phased out of the insurance world several years ago, noting the change was largely customer-driven in that instance. Insurers realized a competitive edge was there for the taking by reducing the friction involved in payouts and so the industry rapidly embraced smoother payments.
There won’t be any customer-driven change in B2B payments, but Edwards believes cost considerations may instead provide the impetus to eventually move away from checks.
“Senders don’t actually like sending a check because it’s expensive,” Edwards said, pointing out that in some businesses it can cost up to $25 per check that has to be produced.
Edwards believes change is already happening, but it’s taking place slowly as companies now are mostly focused on solving the problem of how to pay the people they engage with on a daily basis.
“At the end of that they’ll turn around and say, ‘OK, what do I do about the other guys?’ ” Edwards said. “It’ll have to be a different solution to the way they solve things for the people they pay every day, because they’re using human intervention and call centers to sign those people up. You can’t do it that way with someone you’re only paying four or five times a year.
“So it has to be an electronic solution or a digital engagement that drives everything from soup to nuts,” he added. “They will get there but it will happen after they’ve solved the big issues with B2B payments.”
Asked if it’s possible to somehow accelerate that process, Edwards said the key is to get a few big players to take the first step. If that happens, herd mentality will kick in, he said, as others come to realize how it can benefit them.
“Once we hit that tipping point and people realize, ‘Oh we can’t keep mailing checks,’ then it’ll get prioritized,” he said. “Right now the number one hurdle is technology prioritization. It does require some technology integrations to APIs and to systems. So on our side, we’re doing everything we can to make it as easy as possible for businesses to adopt. The check will die eventually.”