The Five-Day Gap Hiding Inside B2B Payments

The basic, traditional architecture of a business disbursement has historically contained an unusual gap. Companies can decide that money should move long before the recipient can use it. The economic decision has been made, but checks, batch files and clearing cycles can leave the transaction suspended between approval and access for days.

Fast-forward to today, and card-based disbursement infrastructure is beginning to collapse that gap, according to findings in the July edition of PYMNTS Intelligence’s Embedded Finance Tracker® Series.

Card-based disbursement infrastructure can combine real-time funding with configurable controls, centralized management and API connections to the systems originating payouts. The second-order impact of that capability turns disbursement modernization from a payments-speed project into more of an operating system upgrade for how enterprises release money.

Business Disbursements Move From Clearing Cycle to Software Workflow

Traditional disbursements contain several separate steps, including approval, issuance, transit, delivery, reconciliation and confirmation that the recipient received the money. Each step creates another place where time and operational complexity can accumulate, as illustrated by the use of checks, where a payment can be approved internally but still require printing, mailing, delivery, deposit and clearing before the recipient has usable money.

Card-based infrastructure changes the sequence. Prepaid or virtual cards can be funded when a payout is approved, allowing recipients to access the value without waiting for a physical instrument to arrive and clear. APIs can connect the disbursement platform directly to claims, lending or ERP systems, reducing the manual handoffs between the decision to pay and the movement of money.

That effectively converts time from a constraint into a configuration. Instead of asking how long a payment rail takes, businesses can ask when money should become available, who should receive it, and what rules should govern its use.

Read the report: The True Business Cost of Slow Disbursements

Historically, enterprises have had reasons to tolerate slow processes. Delay can provide time for reviews, compliance checks, fraud controls and reconciliation. But real-time does not necessarily mean uncontrolled.

Modern card programs can place parameters around how, where and when money is used, an important capability for regulated payouts such as workers’ compensation, structured settlements and benefits. Centralized platforms can simultaneously give administrators visibility into issuance, funding and reconciliation. The result is a different proposition than replacing a three-day payment with a three-second payment.

Transaction costs capture only part of what legacy disbursement systems cost. PYMNTS Intelligence identified additional costs in capital tied up in transit, manual exception handling, recipient dissatisfaction and lost commercial reach. The report’s illustrative model showed that an organization distributing $10 million monthly while carrying five additional days of payment transit would have roughly $1.6 million committed to that process at a given time.

A company processing 15,000 monthly checks, for example, would generate 1,200 exceptions if 8% required manual intervention. At 20 minutes per exception, that represents 400 employee hours devoted to investigating, correcting and reissuing payments, according to the report.

The first generation of digital payments focused primarily on replacing physical money movement with electronic transactions. The emerging generation is about coordinating the decisions surrounding those transactions, including authorization, identity, compliance, funding and reconciliation.

At PYMNTS Intelligence, we work with businesses to uncover insights that fuel intelligent, data-driven discussions on changing customer expectations, a more connected economy and the strategic shifts necessary to achieve outcomes. With rigorous research methodologies and unwavering commitment to objective quality, we offer trusted data to grow your business. As our partner, you’ll have access to our diverse team of PhDs, researchers, data analysts, number crunchers, subject matter veterans and editorial experts.