Why Digital Alone Won’t Solve Business Payments Frictions

The accounts receivable function is broken.

The paper-based processes that have been AR hallmarks have been inefficient at best and punitive to cash flow management at worst.

The great digital shift was supposed to fix all that, but this has not been the case — mainly because that shift has not been uniform across the globe.

“There’s inertia sitting around in parts of the supply chain,” Justin Main, vice president, integrated payments and BPN at Billtrust, told PYMNTS.

Main said there had been pockets of innovation in the business-to-business (B2B) space, but by and large, the U.S. has lagged in digital adoption of new, electronic back-end functions.

He noted that everyday examples abound and offered up a recent example from his own life.

It might be shocking that a digital payments executive at Billtrust would be searching the house to find the family checkbook — but there he was, signing a check for the contractor doing some repairs in the basement.

Smaller firms, he said — especially sole proprietors — are still running their businesses with paper invoices and paper-based payments. (Main also noted to PYMNTS that he introduced that contractor to digitized accounting systems that can help even micro-firms run more efficiently).

There may be some tailwind that spurs companies — and specifically, CFOs and finance departments — to embrace technology to improve operations.

“They’re moving from chasing revenue at all costs to operational cost cutting,” Main said. “And they’re finding significant opportunity with accounts receivable.” The dollars it takes to run a finance department are coming under a sharper gaze, and executives are revamping the way they do things. Invoice functions are prime candidates for cost-cutting and modernization.

There are scores of suppliers across various verticals that are still delivering print invoices and PDFs. That leads to payment delays — and time is money, as they say. Main also noted that significant costs are tied to printing out the invoices and sending them, with funds spent on printers, ink and stamps.

Digitization Won’t Fix Everything

He cautioned that simply digitizing functions does not equal a streamlined AR department. Main told PYMNTS that larger firms tend to have staff and entire departments on hand that are paid and spend time keying in data into systems to eventually wend their way through the B2B supply chain to be, ultimately, presented and paid.

There’s a significant pain point because there’s decoupled remittance in the mix. A firm might “push” an ACH credit but email its counterparty the remittance. There needs to be a “marrying” of data that is standardized, where artificial intelligence (AI) and machine learning (ML) can change the ways buyers and suppliers interact.

True upgrades — that automate the AR and other functions — also embed payment choices to offer buyers all of the payment methods and channels they want.

“It’s about making it easier for these firms — many of them SMBs [small and midsized businesses] — to pay you, with a credit card or a mobile channel,” Main said. “They don’t have to think about you — they buy things automatically and there is automatic payment.”

The ideal setup, he said, relies on a tech stack with zero human touch, whether a payment is push or pull, whether the payment is done by check, ACH, through accounting software or bank accounts.

The automatic flows of invoices and payments, coupled with payments choice, and purpose-built networks, Main said, take the pain out of the reconciliation process.

“When we talk about purpose-built networks, we talk about buyer networks and supplier networks, where there’s a commonality between them. Both of them are able to technologically or programmatically enforce financial policies, both from a payables-out and a receivables end,” Main said. Buyers can receive discounts for early payments, for example, and suppliers get paid on time.

“AP systems and AR systems coming together and really experiencing mass adoption in the U.S. is critical to streamlining overall commerce and B2B,” he said.