Mastercard: Instant Payments Unlock Weeks of Working Capital for Small Business Suppliers

Buyers and suppliers have been trying to accelerate B2B payments for decades.

No easy task: they’ve both wrestled with the basics of getting payments done faster, and the paper check has proved to be surprisingly sticky.

Only in the past few years have we seen the partial embrace of buy now, pay later (BNPL), virtual cards and dynamic discounting in the space.

“All of those past attempts to accelerate payments required an approval first,” said Ron Shultz, executive vice president of new payment flows at Mastercard.

He told PYMNTS’ Karen Webster that “large companies just are relatively slow when it comes to matching up purchase orders and bills of lading and invoices and sending them through various departments and getting them approved.”

Smaller suppliers, especially, have paid the price. In a world where improvement has meant they’ve been getting paid in 45 days, on average — better than the 60-plus days that have been standard practice, but not enough to keep small and medium-sized businesses (SMBs) from a cash flow crunch.

Indeed, not all that long ago, PYMNTS estimated that as much as $3.1 trillion is locked up in accounts receivable, in the U.S. alone, on any given day.

To help tackle these problems, the payments network last week announced the debut of Mastercard Track Instant Pay, a virtual card solution for instant B2B payments.

Read More: Mastercard Launches Instant B2B Payments

The solution integrates with Mastercard Track Business Payment Service, Mastercard’s open-loop B2B network and leverages buyers’ existing credit lines to help suppliers get paid more quickly.

The virtual card offering can speed up B2B payments by sidestepping the frictions inherent in automated clearinghouse and other methods. The solution helps solve a problem that bedevils digital payments too, where 90% of virtual card transactions are still being processed manually.

With straight-through processing, digital payments are sent securely to a supplier’s bank account via a Mastercard virtual card, with no need for manual intervention.

Shultz said Mastercard Track Instant Pay has been in the works for a few years — and noted that the solution is a true innovation that ties artificial intelligence (AI) to Mastercard’s virtual card platform, ensuring that small and mid-sized suppliers get instantly paid.

The new Mastercard offering, explained Shultz, uses buyers’ data and machine learning to intelligently and securely authorize invoices for immediate payment when a supplier submits an invoice, ensuring suppliers get paid in a few short days, and fostering connectivity between firms that simply has not existed in the past.

“This program is really designed for the mid-size and smaller suppliers,” he said.

The Mechanics of Instant Pay

Shultz noted that buyers already part of the company’s B2B payments network and have an unused credit line with issuers can opt into the instant payment service.

Through Track, he said, Mastercard supports all rails and payment types from buyers, including ACH, and thus several days can elapse before payment moves from buyer to issuer. Mastercard, for its part, leverages machine learning capabilities from Previse to calculate supplier performance risk, effectively, the likelihood the invoice is accurate and that goods and services have been provided as described.

“And then we authorize  the invoices on behalf of the buyer for immediate payment,” said Shultz, who added that the buyer gets the extra time afforded by the credit line tied to their virtual card program.

Suppliers, he said, benefit by receiving the offer from the buyer to get paid immediately, simply by opting in and accepting the virtual card for payment. If the supplier does not accept cards, they can be onboarded through Mastercard’s supplier enablement programs.

Pilot programs already in place show that suppliers are getting paid in a few short days, compared to typically having to juggle 44 days of float.

Forging Deeper Buyer-Supplier Connections

Looking ahead, there is a logical connection between Mastercard’s instant payments and Mastercard Track’s supplier directory that the firm is building for its partners (which in turn can lead them to instant payments).

The instant B2B payments are being rolled out into a commercialization phase, opened to all of Mastercard’s partners, said Shultz, while cataloging their preferences for future use.

Along the way, we’re likely to see affinity cemented between buyers and suppliers, where faster access to cash should do much to alleviate the struggles of smaller firms, especially in an environment of rising rates.

Smaller suppliers will be able to replenish inventory or expand businesses more efficiently — a potential boon for businesses like restaurants and liquor stores that typically must pay on delivery.

Mastercard, in turn, can use the data it collects from the service to better optimize supplier acceptance preferences for companies while helping them become more efficient in how they invoice for goods and services. Scale should come quickly, Shultz predicted, as Mastercard already has the building blocks in place.

“You leverage existing assets, and you bring them together. That is innovation,” he told Webster. “It doesn’t have to be a brand-new rocket ship.”

Mastercard Track Instant Pay, he said, “hits home on so many objectives.”

See also: How SMBs Can Address Late Payments — Before They Happen