How Inefficient B2B Payments Systems Hobble Business Growth

Business confidence remains strong in the U.S., riding on the optimism of a strengthening economy that brings new opportunity for revenue growth. This is particularly true for small and medium-sized businesses (SMBs), most of which are anticipating revenue growth in the year ahead, according to JPMorgan Chase research.

The firm’s Business Leaders Outlook report, published earlier this month, found that the majority of SMBs expect revenue, sales and profit increases in 2019, with executives turning to hiring activity and technological innovation as drivers of their success.

What businesses may often miss in their growth trajectories, however, is the importance of focusing on back-office operations, particularly when it comes to finance and payments. Corcentric President and COO Matt Clark explained that failing to transform financial functions, like accounts payable (AP) and accounts receivable (AR), can actually stall businesses’ expansion efforts.

“Unfortunately, these processes are probably the last things that get addressed,” Clark told PYMNTS’ Karen Webster about when businesses plan for growth. “Businesses very much focus on their core competency activity, and focus on making sure they keep production levels where they need to be. Usually, the back office, where payments come in or go out, [is the] last to be addressed.”

The First Step — And Beyond

There is usually an “aha” moment as companies grow in which they realize they don’t have the processes and technologies in place to make AP and AR as efficient as they can be. While every company is different (in different stages of growth, with different points of financial friction), Clark said they all have the same first step in the financial transformation journey: a shift in mindset.

Organizations need to understand that back-end financial processes are not simply administrative necessary evils, Clark said. Instead, companies are beginning to realize that processes like accounts payable can actually generate revenue, for instance, in the form of early payment discounts from suppliers or via virtual card rebates.

However, financial transformation is complex. Once the initial step of a change in mindset has been achieved, the second step is not always clear — and certainly won’t look the same for every business.

According to Clark, this is where it’s important to bring a partner on board, with data analysis becoming an integral part of understanding where companies’ biggest points of financial friction exist. Assessing trends in incoming and outgoing payments, supplier relationships, transaction volumes, purchase order (PO) verses non-PO payments, and Days Sales Outstanding (DSO) timeframes can provide valuable insight into where the low-hanging fruit of opportunity lies. That might mean discovering a segment of vendors that are ripe for virtual card payments or integrated remittance data.

A Holistic View

Identifying these opportunities can be difficult, especially considering the strategies that many firms have historically taken to digital transformation.

“Companies might implement a procure-to-pay solution separate from a payments solution, separate from a procurement tool,” Clark explained. “We’re encouraging folks to take a more holistic view of it — to consolidate the message to the supplier, and map out a number of different ways the process can be improved. Through that, you can provide optionality to the supplier.”

By taking a bird’s eye view of financial processes in the back office, organizations can better choose areas of improvement that will have the greatest impact on financial efficiencies and supplier relationships, he added.

Yet, the financial transformation process is not an easy one to begin, especially for companies that have struggled to piece together siloed platforms with technology that’s been in place for years, sometimes decades. Luckily, Clark said he’s seen a shift in businesses’ willingness to explore the process, with organizations more easily convinced of the financial transformation benefits as they see their industry peers digitize.

A younger generation of business owners and decision-makers in the enterprise is also helping to drive adoption of transformative financial technologies, while newer businesses emerge without the challenge of having to overhaul legacy back-office infrastructures.

Looking Ahead

After the first (and second) steps are made, the next moves will often fall into place. Revenue generated from virtual card rebates, for example, can finance investments in automated AP and AR technologies. Accelerating payments by adopting electronic payment tools can streamline the integration of remittance data, and provide deeper insights into other areas of the procure-to-pay process that are ripe for improvement.

The possibilities are seemingly endless, particularly as the consumer payments world ushers in new technologies for the B2B space.

“Whether it’s a year from now or three years from now, whatever is working in the consumer space will ultimately make its way into the B2B space,” Clark said. “It’s a matter of when, not if.”

The one step that companies cannot afford to take, Clark warned, is to do nothing.