Moving B2B Payments’ Last Mile Into the Express Lane

The “last mile” holds the key to a frictionless B2B payments future.

Over the last decade, the impact of digital capabilities and innovative new ecosystems has taken the payments industry by storm and rained new efficiencies and growth vectors down across the landscape.

But these advancements have largely focused on the periphery of the transaction occasion, streamlining legacy workflows and processes within the accounts payable (AP) and accounts receivable (AR) domains while leaving the actual payment itself somewhat untouched.

“There have not been that many advances optimizing the way in which buyers and suppliers pay and get paid,” Dean M. Leavitt, founder and CEO of Boost Payment Solutions, told PYMNTS CEO Karen Webster as part of a discussion for the PYMNTS executive series “What’s Next in Payments Innovation.”

“On the large scale, AP and AR innovations have been developed to help companies from invoice production, invoice review, approval, reconciliation … on the invoice presentment and review side of the equation. But the payment area is really the last mile,” Leavitt said.

“Inertia is an incredibly powerful force, but the growth that we’ve seen has been enormous,” he added.

The ongoing digital innovations within the B2B payments space have to date had a profound impact on enterprises of various sizes by making AP and AR technologies both accessible and cost-effective for enterprises of all sizes.

And while AP and AR innovations have made significant strides, manual payment processing, posting, and reconciliation still hinders the adoption of digital payments and continues to hold back the last mile of business payments.

Proprietary technologies and solutions that automate these processes are key to enhancing efficiency and breaking institutional inertia in the commercial transaction space, Leavitt explained.

Efficiency and Optimization in the ‘Last Mile’

“Removing the manual element from having to process hundreds, thousands, tens of thousands of payments — having to manually post and reconcile these actions — that’s the area that needs a lot of focus [on innovation], because unless you can remove that manual process and the HR associated with it, you’re not going to get the type of adoption for digital payments that both buyers and suppliers want and need,” Leavitt said. “The payment piece is crucial for broader digitization at the enterprise level.”

One notable outcome of these innovations is increased collaboration between trading partners. Businesses are now more inclined to coalesce around payment terms and dynamic pricing, fostering better relationships and transparency between buyers and suppliers. The digitization of invoice-related processes has laid the groundwork for such collaboration.

But it won’t be technology alone that solves the innovation adoption puzzle. Breaking the inertia that has slowed down payment innovation and enterprise adoption will require broader incentives and macroeconomic pressures.

Leavitt pointed out that rising interest rates and the need for working capital have become catalysts for change. Commercial card products, offering an on-demand source of working capital, are increasingly attractive to both buyers and suppliers.

This shift in attitude toward working capital is pushing businesses to explore new payment methods.

“The cost of capital has risen dramatically. So, for commercial card products, they’re extremely attractive to both buyers and suppliers as an alternative source of credit … the need for working capital right now across both stakeholders, buyers, and suppliers is trumping everything,” said Leavitt.

Solving the issue of working capital access is top of mind for payments companies including Boost, which recently launched Boost 100, which allows buyers to use commercial cards for all payments, even to non‑accepting suppliers.

Dynamic Capabilities and Dynamic Pricing

Along with the growing need for working capital and advancements in commercial card products, dynamic pricing models are poised to drive further innovation in the industry.

Companies are increasingly looking to optimize days payable outstanding (DPO) and days sales outstanding (DSO) based on their unique circumstances with the goal of creating win-win scenarios for both parties.

That’s part of why Leavitt noted that real-time payments are less relevant for enterprises that rely on term-based payment structures. However, they have been game-changers for the small and medium-sized business (SMB) marketplace, gig economy and non-term-based transactions. Real-time payments provide speed and flexibility for these segments.

When asked about the applications of generative artificial intelligence (AI) in the commercial payments space, Leavitt noted that the tech is still in its early stages and some things still “need to be flushed out.”

While AI is currently utilized for transactional purposes like parsing, its potential for more advanced applications, such as coding, needs further exploration. The industry is cautiously assessing the maturity and reliability of AI technologies before wider adoption, he added.

Looking ahead, Leavitt emphasized the importance of collaboration between technology companies, financial institutions and networks. Flexibility in pricing models and cost-sharing mechanisms is seen as a way to drive innovation further within the B2B payment space.

“Historically, the costs were set by one group of stakeholders and certainly in card land, the cost was always borne by the payee. What we’re seeing now is all kinds of new ways in which pricing constructs are much more flexible,” Leavitt said.

“Equilibrium points are evolving based on the value proposition that each stakeholder views … there’s more creativity around flexibility in pricing and who’s picking up the cost of it,” he said. “I think that will be a major influence on the further expansion of digital payments over the next year or two.”