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Why the Players That Focus on Both Sides Will Win the B2B Payments Market

payments
Archives, Banking, Global Trade Daily

Why the Players That Focus on Both Sides Will Win the B2B Payments Market

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Remote work initiatives have created a strong tailwind for digitizing business payments, with companies rushing to move away from checks and onto card and ACH payments. This huge market–roughly 10 times the size of the consumer payment market–is ripe for change. Over the past decade, a decent amount of investment has gone into this area. Everyone is getting into the game: banks, card providers, and fintech providers, for example. It’s very early days, with paper checks still the predominant form of payment in the US. Who will win the market? Ultimately, it will be the players that can best address the needs of both buyers and suppliers.

I’ve spent time on both sides. Before coming to Nvoicepay, which helps automate the payment process on the accounts payable side, I was with Billtrust, which automates accounts receivable. Their founder and CEO, Flint Lane, was a big believer in the need to solve for both sides of the equation. That was my first introduction to the concept. Now, having sold into both accounts receivable and accounts payable, I’m a firm believer as well.

Two Sides of the Coin

There are two sides to every payment—creation and receipt. When it comes to consumer payments, both sides are straightforward, especially with today’s technology. But in the world of business payments, process complexity adds friction between them. Accounts payable’s goal is to manage cash flow by hanging on to money as long as possible. That puts them at odds with accounts receivable, who wants to get paid as quickly as possible. Digitizing transactions doesn’t efficiently address the complexity or friction between the sender’s and receiver’s processes. And the lack of consideration can worsen the issue.

For example, funds sent by accounts payable may hit their vendor’s bank faster with card or ACH payments, but a complicated payment application process can lose the receivable department precious time anyway. Without a way to streamline the process from beginning to end, simply switching to electronic means in a few places may not offer the time savings that businesses hope to achieve.

What’s the Solution?

Portals work well for larger companies that can dictate the terms of doing business to their smaller customers. But their customers may not be happy having their own interests dictated to them. And if you don’t have that kind of authority, chances are your portal will go unused because you’ve created a one-off process for your customers, making life harder for their accounts receivable people.

Electronic means can help accounts payable make payments at the last minute, and they’d prefer paying by card over ACH because they can make money on card rebates. But convincing suppliers to accept card is often a challenge because the accompanying fees can get expensive very quickly. Meanwhile, enabling suppliers for ACH translates to AP managing large amounts of sensitive bank account data.

Many organizations end up “dabbling” in electronic payments because of these enablement challenges. That leaves them managing four different payment workflows–card, ACH, wire, and a whole lot of checks. This is the problem that payment automation providers solve by taking on the supplier enablement process, maximizing card rebates, and simplifying AP workflows.

As much as both sides might agree that digital payments are the future, they’re stuck between a rock and a hard place without automation.

Paving the Way

Fintech businesses like Nvoicepay and Billtrust are bringing automation to payables and receivables separately, and that’s a big step forward. I believe the next generation of solutions will bring both worlds together on a flexible, dynamic platform where both parties to a transaction can choose from a range of options that best meet their needs at any given time.

From an accounts receivable perspective, funds need to be accompanied by enhanced digital remittance information. They could offer buyers incentives in dynamic discounts in exchange for speedy payment and a streamlined cash application process through the platform.

On the buying side, easy access to supply chain financing could allow them to take advantage of such discounts while at the same time extending payment terms. The buying organization takes its two percent discount and gives half a percent to the financing organization, paying the invoice within the discount window. Then the buying organization pays the financing organization in 30 days. Payables manages cash, gets part of the discount and a rebate if they pay by card.

Bringing it All Together

The key to creating these win-win outcomes is including the presence of a technology platform that uses data to offer convenience and choice, allowing organizations to meet whatever their needs happen to be at any given time. For example, if your cash position is good, you may not offer discounts or offer them more selectively. If you work with many small suppliers with tight margins, consider taking the card option off the table.

These are not new ideas, but they haven’t yet been addressed effectively with technology. Historically we’ve tried to do this through EDI (Electronic Data Interchange), a computer-to-computer communication standard developed in the 1960s. It’s always been very clunky, and it is unwieldy for the volume and velocity of data in the supply chain today. However, a majority of organizations still use it for lack of anything better.

Nacha and the Real-Time Payments Network add remittance data to ACH payments, but that’s not a complete answer. There still needs to be some technology put in place to incorporate the data into payment workflows.

Suppose you look at fintech innovation in the consumer payments market as a leading indicator. In that case, it’s been less about new payment products and more about using technology to send and receive money seamlessly, regardless of which electronic network is used.

In B2B payments, fintechs changed the game by thinking about payments as a business process rather than a collection of products, and built software solutions to automate those workflows. With remote work providing an additional incentive, many more organizations are adoping electronic forms of payment. That, in turn, makes data more available to continue developing digital platforms. Whoever gets there first has a good chance of becoming the leading player, but you won’t get there at all if you don’t build for both sides of the equation.

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Derek Halpern is Senior Vice President of Sales for Nvoicepay, a FLEETCOR Company. He has over 20 years of technology sales and leadership experience, including 16 years in the fintech and payments space. 

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Archives, Banking, Global Trade Daily

Uncover New Opportunities from a Return on Experience

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The pandemic, though terrible, has given us much-needed time to pause, reflect, and perhaps make some changes to the way we live our lives. We have a chance to reevaluate what is really important to us. What brings us happiness? What drains our energy? What experiences add meaning to our days? Which ones take it away? We have an opportunity to face this challenge in a way that makes us better people.

Businesses are on a parallel path. With the diminishing of old norms comes the possibility of reimagining our old processes. That has brought about an acceleration of technology adoption across virtually every industry. Still, there’s another storyline emerging as well—the rise of what Heather E. McGowan calls The Human Capital Era. McGowan believes that the workforce has exhibited incredible resilience and creativity during the pandemic. They’re “an asset to develop rather than a cost to contain.”

I’m all for it.

Everyone knows the term “return on investment”—or “ROI”—meaning you get more monetary value out of something than what you put into it. But money is not the only measure of value. As we take stock of our business and personal lives, I think we should re-establish a lesser-recognized concept: return on experience.

Return on experience is significantly more objective than a return on investment since the measurement varies by opinion rather than hard numbers.

For example, we all have gone out to have dinner and found that the bill was more expensive than expected. Maybe the food was just so-so, you had a long wait time, or the server was brusque. Whatever the reason, it just wasn’t a great experience. But you might gladly pay twice as much for dinner where the food is delicious, or the service is kind and attentive. That’s what I think of as return on experience—getting value beyond what money can buy.

We embrace this concept more easily in our personal lives, where there’s less accountability for how we spend our money. For example, pre-COVID, I enjoyed traveling with my wife and two kids. Those trips were expensive, even after accounting for the hotel points and airline miles I’d collected. But the memories will stay with us forever, long after the cost has been absorbed and forgotten.

When you think about your business and your accounts payable team, what is the return on experience from antiquated methods like processing checks? What is the opportunity for growth? One person can’t cut or sign checks much better than another. There’s a limit to the impact you can have by stuffing checks in envelopes every week. It’s the opposite of a good experience.

Incorporating automation in your back office is a good way to tackle ROI and ROE simultaneously. When you have removed mindless tasks from your AP team’s plates, they are free to spend their energy on more interesting, strategic, and valuable tasks. I think that’s an initiative that’s well-aligned with the Human Capital Era.

As we re-examine our lives and our businesses, let’s remember what it means to evaluate something in the first place: to judge or calculate the quality, importance, amount, or value of something. And in that calculation, consider the return on experience in terms of your business, beyond money. It’s about setting yourself and your employees up to live and work in a high-quality environment—one that encourages personal and professional development.

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Derek Halpern is Senior Vice President of Sales for Nvoicepay, a FLEETCOR Company. He has over 20 years of technology sales and leadership experience, including 16 years in the fintech and payments space. 

automation
Archives, Banking, Global Trade Daily

Making Your Case: The Four E’s of Payment Automation

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Paying suppliers by check is a practice that has endured for much longer than anyone would have imagined. For a while, it looked like COVID-19 might be the tipping point for companies to go completely electronic. After an initial push in that direction, however, many accounts payable departments still send their workers into the office to process invoices and manage the manual check process.

It’s not enough to want to get rid of paper checks. The case against them is not strong enough on its own. It has to be combined with a strong business case in favor of something else.

Even though manual processes are expensive, there are some rational arguments for relying on check payments. You don’t have to enable suppliers for electronic payments, manage banking data, or worry about ACH fraud. You can even outsource the process. While suppliers generally like the idea of electronic payments, they can also be deterred by complex enrollment processes.

People may also still be attached to the idea of check float. Even though interest rates remain at historic lows, it can provide a sense of security to see money in bank accounts for longer. Some businesses even have tenured employees who are used to older processes.

So is the check-writing process that bad?

The answer might have been different last January, with easy access to check printers. But now that accounts payable teams are sheltering in place, their processes often involve driving into the office and to other residencies to get checks signed. Add in the other check-stuffing and mailing steps, and you’ve got a significantly time-consuming task.

Despite the laborious nature of this process, many organizations have still stuck with it. At any rate, the widely-predicted wave of late payments never formed. People dug in and got things done, despite the unforeseen challenges. The added steps have now become business as usual.

While it seems absurd to add “driving paper around” to anyone’s job description, it speaks to how deeply checks are embedded in the B2B world. Companies hadn’t drawn the line at walking checks around for signatures, keeping a safe full of check stock, or renting an offsite storage space for paper files. What’s one more step?

There are plenty of reasons why it makes sense to stop writing checks, but we’ve narrowed it down to four. These “Four E’s of Going Electronic” make up a compelling business case for payment automation adoption.

Economics. What does it cost your organization to write checks? And not just the sum of material costs like ink, check stock, envelops and stamps–which generally comes out to about 75 cents per check. But also consider the cost of time and people. Industry analysts estimate it’s more like $3 to $5 per check, and it could be as high as $10 in some organizations. Remember to consider opportunity costs in your economic analysis. For example: What could your AP team spend time on instead, once extensive check processes are streamlined?

Efficiency. Even if you only write checks, you might have workflows established for different variations of payments. Perhaps they’re based on the payment amounts, signatures required, or even supporting documentation. All these manual and mechanical workflows could easily be automated, so approvers and signers can do their role in minutes, from any location.

Experience. How do suppliers want to get paid? Do they want to go to the office to handle checks? With ACH or card, suppliers get their money faster, without the threat of a check bounce looming over their heads. If you apply some technology to remittances, cash application experience can be much quicker and painless.

Ease of implementation. It’s easy to do things electronically, but your business case breaks down if you don’t have the resources to contribute towards the implementation process. Suppose you’re going to look for a solution. In that case, the last part of the business case has to be ease of deployment, versus what it would look like if you tried to automate everything yourself.

If you were going to do it yourself, you’d have to find a printing organization to cut the checks. You’d have to get IT to create a file to their specifications. You’d have to keep them supplied with check stock. Then you’d have to get your IT people to create another file for your bank for ACH payments. You’d have to run an enablement campaign to get vendors on board. You’d have to come up with a process for maintaining and storing their information and protecting it from breaches and fraud. You’d have to have IT create a file for your card provider. That’s three separate processes that you have to set up and launch and maintain.

Doing all that on your own is a major undertaking, and when you get right down to it, this is a big part of the reason that checks persist. The case against them isn’t strong enough on its own, and it’s counterbalanced by a case against automation—at least automation as we’ve known it in the past, which is much as I’ve described above–a semi-automated process where you do a ton of work to set it up, only to find yourself managing all these different file types and workflows and data just to be able to move the money electronically—and then you’re still probably doing half your payments by check. People have tried it, and it affirmed their choice to stick with checks.

Compare that to just handing it off to somebody that can automate the whole process and implement in about six weeks with just four hours of IT time. That is what is possible with today’s payment automation solutions. You also get continuous vendor enablement, fraud protection, error resolution and a payment guarantee in the bargain.

What often happens is that employees who want to get rid of checks are the ones most burdened by them. With working from home becoming the new norm, these people are more burdened than ever before. Yet they are not typically the decision-makers when it comes to choosing which projects receive funding. The most significant competition for automation is simply the simplicity of maintaining the status quo.

Perspective is everything. It’s rarely enough to point out how to disrupt the norm–you have to paint a picture for a better future. When writing a business case for payment automation, draw attention to the permanently simplified (and cheaper) workload that automated processes would bring, rather than focusing on the temporary unfamiliarity of your solution. Keeping that kind of mindset may accomplish what years of manual effort have not: eliminating business check writing once and for all.

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Derek Halpern is Senior Vice President of Sales for Nvoicepay. He has over 20 years of technology sales and leadership experience, including 16 years in the fintech and payments space.