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6 B2B payment trends in 2022

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6 B2B payment trends in 2022

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CFOs face a daunting list of challenges in 2022: Managing cash flow and controlling overhead. Getting access to capital. Protecting the organization against fraud. Supply chain chaos. The Great Resignation and the talent shortage. Digital transformation.

How a business makes its payments touches on all of them.

The new imperatives of work from home drove more change in the long overlooked area of B2B payments than we’ve seen in decades. But there’s more room for improvement. This is a huge market–$22 trillion domestically–where banks still have 90% market share. The bank to fintech share shift movie we’ve seen in consumer payments over the past decade is really just beginning to play out in B2B. Here are some of the things I think we’ll see unfold in the year ahead:


 

Check use declines

Just a few years ago, over 50% of US B2B payments were made by check. Now we’re closer to 40%. That’s still a lot of checks, but the percentage will keep dropping. In Europe and LATAM, they don’t use checks, period. They have to transmit data to the government to report and remit VAT. They have to be able to transmit data across borders and banking systems. Imagine trying to do all that using paper.

Checks have persisted in US businesses because they are the only payment method that enjoys near universal acceptance. But as the whole world becomes more digital, maintaining manual check processes will become an increasingly unacceptable burden.

Greater focus on efficient processes

According to the 2022 AFP Payments Cost Benchmark Survey, efficiency–rather than cost savings–is now the top reason for moving to electronic payments. But just shifting to electronic payment types doesn’t create efficiency.

What does payment process efficiency look like? Technology that gives you a single workflow for any type of payment; centralization of digitized information in the cloud; support services such as error resolution, and outsourced vendor enrollment and data management.

Fintechs gain market share

There are a lot of companies in the check elimination business, but not all approaches are equally effective. Banks mainly offer check replacements such as cards or ACH. They’re not offering the combination of technology and services that companies need to become fully digital.

For example, enrolling vendors for electronic payments, and managing and securing their data has historically been a big obstacle to digitization. It can be cost prohibitive to do in-house. Fintech providers use both technology and services to offer a complete solution.

Cards see wider adoption

The percentage of card payments will rise because credit cards simply offer too many benefits to ignore.

On the customer side, you get an electronic process that reduces costs and makes expense tracking and reconciliation easier. Cards free up working capital, and generate rebates. They fight fraud–it’s easier to cancel payment, and to control spend through limits and category blocks.

On the vendor side, payments are received and cleared faster, and they don’t bounce, all of which means improved cash flow. You get better remittance data than you do with an ACH or even with a check. Perhaps more subtly, it enhances the image of your business when you’re big enough to accept credit cards.

Fighting fraud at scale

Criminals always follow the money. When money moved by stagecoach, they robbed stagecoaches. When it moved by train, we had train robbers. As money moves digitally and more people become computer literate, hackers are the new robbers.

Unfortunately today’s robbers enjoy all the same advantages of scale that legitimate businesses do. As it gets harder and harder for individual companies to keep up with fraud at scale, they’ll turn to payment service providers that take on the risk for them.

Blockchain yes, crypto not yet

Cryptocurrencies and NFTs made headlines in 2021. But, it’s still too early to fully understand how cryptocurrencies and blockchain/distributed ledgers will impact business payments.

Blockchain has made banks a tad bit uncomfortable with promises of being able to offer close to real-time transactions while reducing operational costs. In fact, FLEETCOR already partners with RippleNet in our global payments business. Their distributed ledger technology lets our clients pay their beneficiaries in hours instead of the days it would take using the SWIFT settlement network. For customers that are on RippleNet, all the KYC (Know Your Customer) and AML (Anti Money Laundering) information is vetted and there are bank accounts–not crypto accounts–on either side.

Cryptocurrencies still don’t have those required regulatory frameworks in place. Their untraceable nature, volatility, and lack of widespread acceptance are big challenges that must be overcome before we see mainstream business adoption.

In a nutshell

The digitization of B2B payments is happening. It will take a lot longer than it has with consumer payments, because change happens slower and the market is so big. There’s also more complexity. It’s not enough just to move the money electronically. You have to make all the surrounding processes electronic too.

In 2022, we’ll continue to see companies replace checks with electronic payments. But we’ll also see a growing realization that this isn’t true digital transformation.

Even if you’re making 100% of your payments via ACH and credit card, you still have people doing manual work that could be done much more efficiently through a full service payments provider. That reduces your costs, frees up people and capital, generates rebates, and makes your vendors happier because it’s more efficient for them too.

Rick Fletcher, Group President of Corpay Payables, entered the world of payables through leadership roles at Deloitte Consulting, GE Capital, and Comdata. His passion lies in helping customers operate better through making better decisions and gaining payment efficiency. Rick holds a degree in management from Northwestern University.

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HOW TO BETTER PREPARE PAYMENTS FOR FUTURE DISRUPTIONS

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A particularly virulent and nasty airborne virus, it has so far accounted for 2.5 million deaths worldwide with more than 110 million cases recorded at the time of writing. Given these numbers only represent reported incidences, the real tolls could well be substantially higher.

The pandemic has especially caught western societies on the backfoot. Unlike regions more used to infectious disease outbreaks such as Asia and Africa, the likes of Europe and North America have not had to deal with a public health threat of this kind since the Spanish flu disaster of 1918, a four-wave pandemic which is thought to have killed 675,000 people in the USA and 50 million worldwide.

Vaccinations are key to emerging from the worst of the crisis during 2021, both in terms of public health and the economy.

Regarding the latter, COVID-19 has been nothing short of a disaster. America has disproportionately suffered from the coronavirus: Not only does it have the highest registered death toll, but it is also forecast to lose trillions of dollars in revenue.

Predicting the size of the economic fallout is far from straightforward, and estimates vary tremendously.

According to a study by the University of Southern California, anywhere between $3 trillion and $5 trillion could be lost over the next two years, while economists at Harvard believe the pandemic will cost the U.S. $16 trillion, assuming it is over by this fall.

While uncertainty remains as to the exact extent of the financial damage, what cannot be denied is that the financial losses are and will continue to be enormous for years to come.

The second quarter of 2020 saw real gross domestic product in the U.S. decrease at an annual rate of 31.7 percent, the largest quarterly plunge in activity on record.

And one of the most worrying patterns emerging from 2020 is companies struggling to manage cashflows and stay afloat. Payments simply are not flowing through supply chains as they ordinarily would, an observation which is borne out by several reports and surveys.

For example, trade credit insurer Atradius reports in its annual Payment Practices Barometer that businesses across the USA, Canada and Mexico are facing widespread cash and liquidity pressures. Meanwhile, business credit information firm Cortera reported that in May 2020, large companies with more than 500 employees paid their suppliers 15.6 days late on average, up from around 10 days a year earlier.

Responding to economic disruption

So, how can companies safeguard themselves against this sort of financial disruption both now and in the future?

Paying particular attention to cash flow during times of crisis is essential if businesses are to emerge from this black swan event intact–even those that appear to be in strong financial shape, given the longevity of the demand and supply chain disruption being witnessed.

At the start of the pandemic, around March 2020, Deloitte released a series of advice papers on how supply chains can cope with the then anticipated fallout, one of these being “COVID-19: Managing cash flow during a period of crisis.”

“Given the importance of cash flow in times like this, companies should immediately develop a treasury plan for cash management as part of their overall business risk and continuity plans,” the report states. “In doing so, it is essential to take a full ecosystem and end-to-end supply chain perspective, as the approaches you take to manage cash will have implications for not only your business but also for your customers.”

Deloitte draws on lessons learned from the 2003 SARS epidemic, the 2008 global financial crash, and the 2011 Japanese earthquake, offering 15 specific practices and strategies for companies to better manage their cash flow.

15 ways to better manage your cashflow

1. Ensure you have a robust framework for managing supply chain risk.

2. Ensure your own financing remains viable.

3. Focus on the cash-to-cash conversion cycle.

4. Think like a CFO, across the organization.

5. Revisit your variable costs.

6. Revisit capital investment plans.

7. Focus on inventory management.

8. Extend payables, intelligently.

9. Manage and expedite receivables.

10. Consider alternate supply chain financing options.

11. Audit payables and receivables transactions.

12. Understand your business interruption insurance.

13. Consider alternate or non-traditional revenue streams.

14. Convert fixed to variable costs, where possible.

15. Think beyond your four walls.

*Source – Deloitte, “COVID-19: Managing cash flow during a period of crisis”

Among them is advice to extend payables–in other words, take longer to pay suppliers. However, Deloitte warns against delaying payments without prior agreement with customers, urging dialogue between both parties to ensure the supply chain is as minimally disrupted as possible.

Indeed, companies may wish to bring forward payments to suppliers if it prevents them from going out of business, the consequences of which being far costlier than using up some of your own cash reserves early.

As a supplier, offering dynamic discounting solutions for those able to pay more quickly could be a way to improve your cash flows; by using this technique, you are essentially paying customers to provide you with short-term financing. Going down this route could be expensive in the long term, but it could be the only viable option if other financing methods are not available.

Perhaps the most important, albeit least tangible piece of advice is to think outside of the confines of your own business. Rather than simply focus on your own operations, companies should think about how their actions will impact the wider supply chain ecosystem.

A further question revolves around the ways in which payments are being made.

COVID-19 has accelerated the adoption of digital and automated payment methods. For instance, according to research by digital transformation platform MX, there has been a rise in mobile banking engagement of 50 percent since the end of 2019.

The U.S. has been behind the curve on supply chain financing for quite some time. Widescale adoption of electronic, data-driven invoicing will create fluidity and working capital for both suppliers and buyers.

Responding to social disruption

Another dynamic to consider is how to mitigate social disruption.

There is already evidence that the COVID-19 pandemic has rekindled divisions within society–black and ethnic minorities are disproportionately affected by the virus, while the poorest have been hit hardest by the financial costs of lockdown policies.

While not being ostensibly linked to coronavirus, the traction gained by the Black Lives Matter movement in the U.S. has undoubtedly been heightened in the pandemic’s context.

It has also prompted major shifts in consumer and business circles: Citizens and enterprises are putting time and capital towards prioritizing diversity and inclusion.

“Supplier diversity initiatives are no exception,” states supply chain software provider GEP in its 2021 Outlook. “In 2021, procurement and supply chain leaders will need to do more–by developing new approaches to include minority-owned businesses to achieve real targets for supplier diversity.”

Indeed, hardwiring diversity and inclusion into the procure-to-pay process will help organizations respond to the social unrest of 2020. This will involve tracking and benchmarking metrics at a transactional level, and companies can start by focusing on direct spending with small and diverse suppliers.

Going back to Deloitte’s advice on thinking beyond your four walls, businesses should also monitor the revenue growth of their suppliers in order to fully assess the impact of their supplier diversity and inclusion strategies.

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Virtually Fraud-Proof: Why Now is the Time to Grow Your Virtual Card Program

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One of the business stories coming out of the last year is the dramatic growth of electronic supplier payments. In Q4, Nacha, National Automated Clearinghouse, reported a 15 percent year-over-year increase in B2B ACH payments. The unfortunate sidebar to that story is the rise in ACH payment fraud. In all likelihood, we’ll see a corresponding 15 percent increase in B2B ACH fraud— possibly more, since remote working restrictions left many organizations vulnerable to attack.

As organizations work to improve their defenses against ACH fraud, they should also ramp up their use of virtual cards as much as possible since that is the most secure way to pay suppliers. Supplier objections to fees have always acted as the barrier between the status quo and advanced payment options. With the way the B2B payments landscape is changing, and in light of rising fraud, it may be worth revisiting those conversations with suppliers. Or, for some companies, possibly initiating that conversation for the very first time.

Not the Same as Plastic

Despite its decade-long presence, I still meet a good percentage of people who have never heard of virtual cards—or if they have, they don’t know how they work. Many companies today use a plastic card to pay their suppliers. Alternatively, they use purchasing cards when they purchase supplies. Those physical cards often get lost or stolen. The number can also be stolen even without possessing the actual card.

Virtual cards use the same networks as plastic cards, but they offer several layers of protection that make them fraud-resistant. They are sometimes called single-use cards because the 16-digit number provided can only be used once. That alone is significant. It’s simply not as attractive to fraudsters to steal single-use information. It’s far more appealing to get a regular card number or hack into a supplier system to divert ACH payments. Those are scalable, repeatable types of fraud, if you will.

When it comes to single-use cards, the card number is associated with an amount and a merchant ID number. Each piece of information must match the details provided for transactions to go through. This strict requirement makes single-use virtual cards very difficult to take advantage of.

Really, the most susceptible virtual card risk is employee misuse. You can even eliminate that risk by using virtual cards through a payment services provider—they usually have an indemnification process in place.

Fast, Guaranteed Funds

The big fraud protection benefit is obviously on the buying side, with the buyer receiving a rebate, which helps to defray AP costs. But what about benefits on the supplier side?

Prior to joining Nvoicepay, I sold into accounts receivable. The big concern there is to collect and reconcile payments as quickly as possible. Virtual cards can help on both counts. Virtual card funds reach their designated accounts in 24 hours from the time the payment is approved while checks and ACHs can take up to 10 and two days, respectfully. There’s value in being able to offer AR teams quick payments.

What’s more, these are guaranteed funds. Once they run the card, the funds are theirs. This isn’t always the case for ACH and check payments, which can fail or bounce. Wire payments are the only other payment type that is guaranteed, but they’re expensive to issue and time-consuming to set up, which is why they’re not usually used domestically.

When it comes to reconciliation, plastic cards are hard to reconcile at scale, but virtual cards can be wrapped into a technology solution like the one I used to sell, which automates those processes.

A More Nuanced View

When it comes to fees, there’s still a misconception that accepting virtual card is expensive for suppliers. I do think 2020 acted as a tipping point where suppliers are looking at fees in a more nuanced way. Fast, guaranteed funds are nothing to sneeze at in an environment where many of their customers might be struggling.

Suppose you scale your program and set up a portal for suppliers to receive virtual card payments. In that case, you can receive level two and level three discounted processing. That can often significantly minimize your fees. I’ve seen instances where fees went from 2.5 percent to 1 percent.

Volume and payment size are components of those discounts—if you make large volume payments, you might get a better overall rate and better rates on smaller payments. But access to data is another component. The additional data associated with virtual cards helps issuers mitigate fraud risk. Other data is transmitted with the payment—data that can be used for economic analysis and even for marketing.

It appears that in 2020, COVID-19 did more to move companies off checks and onto electronic supplier payments than all the sales and change management efforts of the preceding decade combined. While the initial response was to adopt ACH payments, companies maturing their electronic payment programs will find virtual card a strategic component that promotes fraud protection and supplier support.

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Kristin Cardinali is Vice President of Regional Sales at Nvoicepay, a FLEETCOR company. Her experience in sales and sales leadership spans 16 years, and includes positions held with companies like Capital One and Billtrust. With Nvoicepay, she delivers scalable payment solutions to mid-market and enterprise companies. Kristin has received several accolades, including Sales Rep of the Year & Quarter, and multiple President’s Awards.

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LATEST: 2020 is Shifting the B2B Payments Scene

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B2B payments have historically been slow to adapt to automated payments but COVID may be the vehicle to forever change how business payments are processed. Josh Cyphers, President of Nvoicepay, a FLEETCOR company that transforms the way firms pay their suppliers, provides insights into the changes and trends businesses are experiencing in B2B and mobile payments and how it’s impacting businesses moving forward.

What are some of the big trends driving B2B payments?

Paper checks still reign supreme in B2B payments, but COVID has created a compelling event that is really pushing companies toward fully automating payments. This is a big shift. Over the course of the last 10 to 15 years, check use has been ticking down ever so slowly. According to the 2019 AFP Electronic Payments Survey Report, organizations made 42 percent of their supplier payments by check in 2019, down from 81 percent in 2004.

Now that accounts payable departments are working remotely, companies are trying to minimize the amount of manual work that requires trips to the office, or to employee’s homes to get them to sign checks. Suppliers are asking to be paid electronically because they get the money faster and they don’t have to go to the bank. It will be interesting to see the 2020 AFP report and see if the pandemic pushes organizations to finally give up checks.

The other thing that’s happening is an extreme focus on managing cash. Given the economic environment we’re in, a lot of companies are looking for ways to conserve cash. They’re looking at the timing of payments; extending payment terms to suppliers or delaying payments. With an automated solution, all of the payment approvals and workflow are online, and you have visibility into every payment as it moves through the system, and that gives you precision control over cash flow.

What are some innovations you’ve noticed in contactless payments lately?

In B2B payments, I would define contactless as not having to do manual work. Cloud-based software is enabling accounts payable departments to automate work they’ve previously had to do manually. That includes the handling of paper checks but also a lot of the work that goes into electronic payments as they’ve historically been done through banks. For example, if you want to do ACH payments, you have to pick up the phone or send out emails and collect suppliers’ banking information and probably manually key that into a system. For card payments, you have to phone or email to find out who will take a card payment, and then you might have to phone the supplier with the card number, and then they enter it into a terminal. There’s a surprising amount of manual work that has to be done to get the funds to move electronically through the banking system.

The cloud is what is enabling payment automation providers to transform that disjointed process, with all its manual touchpoints, into a single automated workflow.

 

The cloud also makes implementation very fast and easy, so automating payments is something that an organization can now accomplish in a matter of weeks.

How has COVID impacted mobile payments?

Having a cloud-based solution allows accounts payable professionals to make payments anytime, anywhere. But up until COVID, that kind of mobile capability was a nice to have, not a must-have for business payments. I’ve never in my finance career seen an AP team that was completely remote. With everyone in the office, mobile just wasn’t a consideration. The construction industry is one exception; in that industry, many of the people who approve payments are out in the field, so mobile capabilities are a real selling point for a payment solution. Now that AP teams have been out of the office, every industry is looking for payment solutions that allow them to work remotely as much as possible.

What do you see as the biggest future trend for mobile payments?

B2B payments are about ten times as big as consumer payments, yet the adoption of cloud-based solutions is still in the single digits. Given the size of the market, the adoption of mobile payments by businesses is a big trend in and of itself.

Mobile payments have changed consumer life by making payment so easy and convenient that you hardly have to think about it. That has had a huge impact on how we live our lives and has really sped up commerce and increased our options. When you think about that same kind of frictionless, mobile payment experience becoming widespread in the business world, which it inevitably will, I think it will fuel all kinds of innovation and change.

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Josh Cyphers is the President of Nvoicepay, a FLEETCOR Company. For the past 20 years, Josh has managed successful growth for a variety of companies, from start-ups to Fortune 100 companies. Prior to Nvoicepay, Josh held leadership roles at Microsoft, Nike, Fiserv, and several growth-stage technology companies. Josh is a lapsed CPA, and has a BS in Economics from Eastern Oregon University.

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It’s Time to Revisit the Benefits of Virtual Card

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In the wake of the many changes this year has brought, companies are moving toward making more of their supplier payments electronically. It’s a welcome thing. Check payments have dwindled in consumer life, but across US industries, nearly half of all supplier payments are still made by check. As accounts payable departments went into work from home mode, it became difficult to cut checks. They rushed to set suppliers up for ACH payments, skipping over what might be a better opportunity: paying them by virtual card.

Not every supplier accepts virtual cards, however. Before you set your suppliers up for ACH, you should at least ask about cards—there are compelling benefits for both buyers and suppliers with that option. For suppliers, getting paid by card is the fastest way to get their money in the bank. On the buyer’s side, virtual cards are the most secure payment method, and they can also generate rebates. To get the promised rebates, you need to find the right card program for your business and have a solid plan for continually enabling suppliers. For most companies, it makes sense to consider virtual cards in the broader context of automating the entire payment process.

To be clear, I’m not talking about p-cards. P-cards are a physical card that AP uses to pay suppliers over the phone. Virtual cards are 16-digit “card” numbers issued to a named supplier for a specified amount. These “v-cards” can’t be processed by anyone other than the supplier, or for anything larger than the authorized amount. And, if somehow a fraudulent transaction should occur, virtual card issuers offer the same protections as they do with plastic cards. When it comes to check and ACH payments, money that falls into fraudulent hands can be challenging to get back. Card processes are more traceable and are, therefore, easier to reverse.

There are Challenges of Maintaining In-House Processes

It’s possible for your team to own their own card payment processes instead of handing the reins over to a payment automation partner. But the work required often dissuades companies from doing so.

One of the main reasons checks have persisted as the top payment type in the business world is the minimal setup required. This makes checks an attractive payment method on paper, especially for companies who do business with thousands of suppliers. But the actual process is more labor-intensive because each check must be approved, printed, signed, and mailed—a process that can take days for some companies.

On the reverse side, card payments require an enablement component. Someone must reach out to each supplier to confirm their payment preference. The up-front work often prevents decision-makers from pulling the trigger on implementing such a system. Ironically, many companies turn to ACH or wire as an alternate solution, but these are even costlier and more time-consuming. For these payment types, companies must collect supplier bank account information. Then they must validate store them securely, and maintain tight, protective controls on them.

For smaller companies that are more focused on generating an additional revenue stream, a standalone virtual card program can be a decent option. The caveat is that without a strong enablement effort, any projected rebate may have to be invested back into your process to maintain it.

Standalone Programs Aren’t Permanent Solutions

An independent program works well when companies are highly integrated between their ERP system and their bank. In these scenarios, the company usually has most of their suppliers set up to receive ACH payments, simplifying the reconciliation process.  However, adding more payment automation over the top of existing automation would be redundant, closing the door on additional revenue that might be generated from a card program down the road.

Larger companies should look at comprehensive payment automation solutions with virtual card embedded into them, even if you don’t plan to use them right away.

How Does Payment Automation Resolve These Problems?

Automated solutions wrap all payment types into a single workflow, making it easy to offer several options to suppliers without adding to AP’s daily workload. Because suppliers are continuously enabled for electronic payments via a supplier network, most companies can immediately pay a significant percentage of their suppliers electronically with no effort. Paying by check also becomes as simple as submitting a pay file and approving it. This simplified process cuts out a significant portion of AP’s manual tasks, leaving them more time to focus on higher-level initiatives.

By automating the whole payment process, including enablement, reconciliation, and error resolution, AP teams usually see cost reductions of up to 70 percent. When you add revenue from card payments into the equation, AP can become a profit center.

Card payments still only account for about five percent of B2B payments. There’s a significant opportunity that companies have been missing out on, either because they haven’t researched virtual cards, don’t want to do the supplier outreach, or haven’t found a partner that can help them make it work. Due to processing fees, not every supplier will accept card payments. Still, a surprising number—around 20 percent of suppliers, in my experience—will say yes if they’re asked.

Now that cash flow is king, companies are shifting to accommodate more ACH enablement outreach. While you’re reaching out to your suppliers, it may be worth your time simply asking if they would accept card payments. Wrapping these initiatives into a payment automation solution may enable your AP department to run lean in the cloud indefinitely.

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Kristin is Vice President of Regional Sales at Nvoicepay, a FLEETCOR company. Her experience in sales and sales leadership spans 16 years, and includes positions held with companies like Capital One and Billtrust. With Nvoicepay, she delivers scalable payment solutions to mid-market and enterprise companies. Kristin has received several accolades, including Sales Rep of the Year & Quarter, and multiple President’s Awards.

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Payment Practices Deteriorating Across Asia

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COVID-19 is causing an unprecedented interruption in business activity across Asia as global trade is projected to plummet by as much as 15%. Businesses are up against major liquidity constraints. As a result, payment practices are deteriorating. The Payment Practices Barometer survey of businesses in the region by trade credit insurer Atradius reveals a concerning trend of rising payment default risks, bad debts and insolvencies.

Late Payments Run Rampant

The survey, which included firms in China, Hong Kong, India, Indonesia, Singapore, Taiwan and the United Arab Emirates, found that late payments affect more than half (52%) of the total value of B2B invoices issued in Asia, largely due to liquidity restraints.

China and Singapore both are trending better than the region’s average, but India and the UAE are in the opposite boat. Late payments there amount to 66% and 72%, respectively, of the total value of B2B credit sales, locking up a significant portion of working capital for weeks at a time. Payment terms in both India and the UAE are significantly longer than in other countries surveyed (UAE has the longest, with 57 days on average). Companies operating in either India or the UAE need to be aware of the situation, as it can be a notoriously difficult and long process to recover outstanding receivables through local courts.

Across the board, late payments have a negative cascading effect for Asian firms: When businesses don’t receive timely payment, they in turn delay payment of invoices to their own suppliers or turn to domestic supplier credit for short-term trade financing. Chasing overdue invoices also ends up eating up a large portion of a company’s time, resources, and funds. One silver lining here: firms in Hong Kong, Taiwan, and China appear to be quite successful in their collection efforts, indicating an overall benign business environment in these markets.

It is important to note that the survey was conducted in March 2020 and conditions have only further worsened since then. Supply chains have been thrown into chaos by the global spread of COVID-19. Major portions of the economy have been shut down for months, and it’s impossible to immediately resume normal supply chain operations. Every part of the production process is cloaked in uncertainty, causing enormous liquidity pressures. To make matters worse, after being less than fully operational for weeks or months, companies are also seeing a downgrade in their creditworthiness, making it difficult for them to obtain funding lines from banks.

Minimizing Credit Risk in the COVID-19 Era

Undoubtedly as a response to the current challenging environment, companies across Asia have expressed an increased commitment to tighter credit management.

To protect their accounts receivables, many Asian firms are increasingly turning to credit management tools and tactics, such as reducing single-buyer concentrations, self-insurance, credit insurance or demanding cash payment, letters of credit or payment guarantees. Self-insurance remains preferred for many companies in the region, especially India.

Many companies rely on a variety of tactics, and the popularity of each varies by country. In the UAE, for instance, bank guarantees and letters of credit are popular, whereas Hong Kong firms prefer to use self-insurance and trade credit insurance and Chinese businesses heavily rely on guarantees of payment prior to a credit-based sale.

Open account credit for B2B transactions is gaining popularity for Asian firms overall, as evidenced by a trend toward lengthening payment terms. The UAE leads the pack among surveyed countries in terms of percentage of the value of B2B sales made on credit (64%) and payment terms (57 days). For comparison, the regional average is 56% and 43 days.

A shift toward open account credit may be in part due to businesses wanting to offer more competitive sales terms amidst the U.S.-China tariff uncertainty or to better negotiate supply chain and trade challenges created by the pandemic. This is likely the case in Taiwan, for instance, where there was previously reluctance to use open account credit – now, credit-based B2B sales make up 54% of the total value of B2B sales, compared to 43% last year. China has also seen a reversal of typical payment practices and now more than half of B2B sales in the country are made on credit.

A Reason to Hope?

Even considering the challenging economic conditions and deteriorating payment practices, firms across Asia express optimism in the future, with many survey respondents expressing belief that both sales and profits in their industry will improve in the near term. But again, that was in March, and we have every reason to believe that this optimism has since faded.

While the total impact of the global pandemic remains murky, what is clear is that businesses throughout Asia would benefit from coherent credit management strategies that have buy-in from all parts of the business, including sales. It’s more important than ever for companies to know their customers, keep tabs on their customers’ financial standing and regularly review both their credit management strategies and the liquidity positions of trading partners.

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Gordon Cessford is the president and regional director of North America for Atradius Trade Credit Insurance, Inc.

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The New Business Case for a Powerful Payment Solution

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Back in 2009, when my co-founders and I started Nvoicepay, there was very little technology in the market to help companies make supplier payments efficiently. Banks were the only game in town. Companies were still making a very high percentage of their supplier payment with paper checks, using painful manual processes. The fintech revolution was getting underway, and we were starting to see tech companies begin to deliver innovations in consumer payments—think Venmo, Apple Pay, etc.—and these quickly gained mass adoption.

Business payments are far more complex, and we’re still not at mass adoption, but the market is picking up steam. There are now several strong suppliers in the market, and investment continues to flow into B2B payments tech. As a result, the move off of check payments is accelerating. According to the 2019 AFP JP Morgan Electronic Payments Survey Report, organizations on average make 42 percent of their supplier payments by check, down from 50 percent in the prior year. This is the biggest drop we’ve seen in several years.

As all this happens, the business case for B2B payment solutions is becoming stronger and multi-dimensional.

Efficiency at the core

Process efficiency remains a core feature of payment automation. It enables an accounts payable organization, which could be making tens of thousands of supplier payments a year, to automate the workflow of making payments of any type—card, ACH, wire or even print check—using cloud-based software and services.

Software automation provides the customer control over the payment, visibility as the payment clears, and complete traceability if they need to access the payment history. But payment services are critical to creating efficiency in accounts payable.

A large portion of accounts payable’s time is devoted to unwinding payment errors and resolving payment exceptions. A single payment error can take 20-30 minutes or longer to resolve; even with a low error rate, most accounts payable teams are dealing with hundreds of errors every month. Payment service providers take that piece off their plates completely and that’s a huge efficiency boost.

These services also address the historic barrier to electronic payment adoption: the labor of reaching out to each supplier to determine how they want to be paid, where the remittance information should be sent, and—if the supplier wants to receive ACH—to collect their banking data and securely store it. Accounts Payable teams working with thousands, or even tens of thousands of suppliers, just don’t have the headcount to do that level of outreach.

Fraud protection and continuity

As enterprises have shifted toward electronic payments, we’ve seen an uptick in ACH fraud. Organizations have become accustomed to dealing with check fraud, and banks usually offer Positive Pay and Positive Payee services to combat it.

ACH fraud is a whole different animal. It’s cybercrime, and prevention requires sophisticated technology and controls, and ongoing employee training. It’s a lot more than most companies can do on their own, but a payments solution provider has the scale to offer extensive security services to all of its customers, and to assume that risk on their behalf. Fraud protection adds another very significant dimension to the business case.

With the global pandemic, many accounts payable teams are still working from home, where it is almost impossible to produce paper checks in a safe, secure, repeatable way. Paying by check was expensive and time consuming before the pandemic, but now the problem is acute. It’s incredibly difficult to approve invoices and make payments by paper check when your accounting staff is spread across their home offices. You literally have to drive paper from place to place to get approvals and signatures. Payment automation gives accounts payable the visibility and control they need to do remote payment approvals from home, making business continuity another dimension of the business case.

Now we’re heading into a severe global economic downturn. Businesses are pivoting to reducing costs, and checks cost a lot—around ten times more than electronic payments. So, in the near term, reducing costs is going to become a driver that accelerates payment automation adoption.

I think this driver will remain over the long term as well, and could very well change our payment behaviors forever. Short term imperatives will drive greater adoption, but as more organizations get a taste of automated payments, it will change the way they think about payments. They will realize there is a far better way to pay than writing checks, and I can’t see anyone who’s adopted payment automation going back to the old way.

Fintechs really are redefining business payments. Banks provide ways to move money from point A to point B. The business case for that is pretty simple—get the best deal on per transaction costs, but beware of the need to add headcount to use these products.

As awareness of these solutions grows, buyers should dig into the details and ask questions to really understand what they are getting and the differences between solution providers, and bank offerings. Some questions to ask are:

-How are payment issues handled and what are the SLAs (service level agreements) around payment support and resolution?

-What does the provider take responsibility for?

-How is data managed?

-How does the provider treat your suppliers, and what services do they offer them?

-How does the provider protect against fraud?

-How are they protected in the event of a disaster?

-How many payments are really sent electronically with their solution?

Some fintechs offer a surprisingly low number of electronic payments. Anything lower than 20 percent is not a payment solution; it’s a payment hobby, and buyers today can make the case for something a lot better. The best fintechs address the entire payment process with automation and services, which enables organizations to move 100 percent of payments electronically with a fraction of the effort previously required, and, by doing so, dramatically lower overall costs.

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Archives, Banking, Global Trade Daily

3 Reasons You’re Still Manually Entering Invoices (Even with Invoice Automation)

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The Accounts Payable process continues to require too much manual handling, even after decades of automation efforts. Even the best invoice automation efforts range from 70-90% data extraction accuracy, which leaves overstretched AP teams with a lot of manual data entry.

Why is this the case? There are a few limitations of invoice ingestion technology that inhibit its ability to extract information. Below are a few reasons why you still need to manually enter invoices.

Reason #1 – Invoices need to be in a structured format to be read accurately

Invoice automation can ingest 70-90% of invoices if they come in a standard layout, or are already digitized. However, according to Levvel Research, enterprises on average still receive 22% of their invoices in paper format, which can arrive folded, wrinkled, or get warped when manually scanned, making them difficult for invoice automation systems to read.

Even if the invoices are already digitized, they may not be in a consistent, structured layout that is suitable for general-purpose OCR – particularly invoices from smaller contractors such as catering services, janitorial services, or small businesses. Most AP teams will need to double-check these invoices after ingestion, or manually enter them into their system.

Reason #2 – Invoice automation uses general-purpose OCR technology

Most invoice automation uses general-purpose Optical Character Recognition (OCR) tools to read PDFs and images. These tools are designed to read text in any situation – a novel, a letter of complaint, or a newspaper article.

Just like people who are jacks of all trades but masters of none, technologies intended for general use face trade-offs compared to purpose-built tools. For example, because general-purpose OCRs aren’t trained to specifically read and understand financial documents, it often misreads a British pound symbol (£) with the number 6, or a dollar sign ($) with an S.

It also can’t factor contextual clues into its work. If an invoice is scanned upside-down, general-purpose OCR cannot understand or extract any information because it’s only familiar with a certain layout. Similarly, it would have trouble with wrinkled, creased, or unevenly lit documents. And just as a student can easily recognize an unfamiliar street address from another country, so too can context help a contextually-aware system identify the important attributes of an invoice it’s never seen before, like supplier and recipient, prices, quantities, descriptions, and so on.

OCR technologies specifically tailored and trained on finance use cases, paired with context-aware AI will offer much higher accuracy rates, making it possible to dramatically reduce the fraction of invoices that can’t be automatically read and entered.

Reason #3 – There’s still a lot of manual data entry

Although reducing manual invoice entry from 100 to 30%, 20%, or even 10% is fantastic, for an AP team with a high volume of invoices, 10-30% manual processing is still a large amount of work that drives up processing costs and time.

Depending on the form of the invoice, there can be dozens of different data points that need to be input into the accounting system. This doesn’t just cost the time and resource of the manual entry itself. It also introduces a lot of room for typos, errors, or missing information that slow downstream processing. Maybe someone mistypes an invoice number using the letter “O” instead of a “0” – but with this simple mistake, a unique invoice is created in the system, and now won’t be flagged as a duplicate. This risk is multiplied when there are several people involved in the process, increasing the processing time and delaying vendor payments – even with the most capable and efficient accounts payable teams.

This can increase the time it takes for invoices to be paid out, straining existing vendor relationships. According to a 2019 benchmarking study by IOFM, even many companies with significant invoice automation struggle with this: 53% of them paid at least 10% of their invoices late – very likely the very invoices that required manual processing.

The future of invoice automation

If the invoice process was fully automated, AP teams could drastically shorten their payment cycles and take advantage of early payment discounts for even better ROI. For a large enterprise, this would result in enormous savings. For example, imagine a company that processes $250M in invoices annually, of which 3% is eligible for a 2% early payment discount. Early payment would result in $2.2M annual savings.

Notwithstanding decades of progress and widespread adoption of automation technologies, it’s clear that invoice ingestion still has significant potential for improvement that can deliver huge business value from the automation itself and from unlocking benefits of a faster processing time.

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Josephine McCann is a Product Marketing Manager at AppZen, the leading AI-driven platform for modern finance teams. 

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Archives, Banking, Global Trade Daily

How to Take Charge of your Cash Flow

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Small business owners in nearly every industry struggle with cash flow and how to best utilize their working capital. Nearly 60% of failed businesses cite cash-flow issues as a primary reason for their failure, which shows how cash flow management can make or break your business.

Here are 4 ways you can set your business up for cash flow success:

Better manage your inventory costs

Inventory can significantly sway your ability to stay on top of your cash flow because there are so many moving pieces to consider: Whether your business benefits from keeping inventory long-term or selling goods quickly, how much it costs to store and how much you can save by buying in larger quantities, are just a few considerations.

Regardless of the best inventory management strategy for your business, it is critical to keep a line of credit on hand to take advantage of the best deals from a vendor or ship items out quickly to maximize customer satisfaction.

Negotiate payment dates with your inventory suppliers to align with your known cash-ins and outs so you know you will have cash on hand to make your payments on time.

Get paid faster

Late payments from customers can really hurt your ability to manage your business, yet they are all too common. Worst of all, late payments create gaps in cash flow which can affect your ability to keep your business moving.

It is important to make sure you are using the best practices to invoice promptly and thoroughly. Using an online tool can reduce room for human error by automating recurring invoices, ensuring you send a confirmation of receipt and track to follow up.

Offering multiple, convenient ways to pay can reduce the payment cycle and improve your customer experience. With payment technology developing so quickly, you can find affordable payment solutions that help you accept payments in ways your customers like to pay, increasing the probability of more business and prompt payments.

Seek out same-day settlement options

Whether you’re borrowing or getting paid, new technologies allow small businesses to access the capital they need faster. FinTech companies are partnering with solutions such as INGO Money to receive loan funds immediately, allowing business owners to manage unforeseen expenses as they arise or on the weekends when typical bank transfers aren’t possible.

New solutions allow for same-date settlement of payments, too. Usually, business owners receiving credit card payments through customers would need to wait up to 72 hours for those funds to hit their accounts. Seek out solutions that offer a same-day settlement to ensure you have access to the funds you earned sooner.

Refocus your time on your business, not your books

A study of 400 small business owners showed that more than 30% of businesses will seek investments in new technologies to improve productivity. Consider how a similar strategy could make an impact for your business. Every hour spent selling your products and working with customers instead of managing your books is another hour you can proactively increase sales for your company, and, effectively, your cash flow.

Most new technology solutions are focused on solving this issue while providing greater customer experiences than previously available in the market. New lending solutions give you an approval in minutes, payment solutions reduce the time to be paid and disbursements are now nearly immediate. All of that adds up to more time available to business owners to focus on doing what they love and selling.

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Aditya Narula is the head of customer experience at Kabbage.  Kabbage has pioneered a financial services data and technology platform to provide access to automated funding to small businesses in minutes.  Since 2011, the company has helped more than 200,000 small businesses access more than $8 billion.