By Derek Halpern
Remote work initiatives have created a positive wind for the digitalization of commercial payments, with businesses rushing to ditch checks and switch to card and ACH payments. This huge market – roughly 10 times the size of the consumer payments market – is ripe for change. Over the past decade, a decent amount of investment has gone into this area. Everyone comes in: banks, card providers and fintech providers, for example. It’s still very early days, with paper checks still being the predominant method of payment in the United States. Who will win the market? Ultimately, these will be the players best able to meet the needs of both buyers and suppliers.
I spent time on both sides. Before coming to Nvoicepay, which automates the accounts payable payment process, I was at Billtrust, which automates accounts receivable. Their founder and CEO, Flint Lane, was a firm believer in the need to solve both sides of the equation. It was my first introduction to the concept. Now, having sold both accounts receivable and accounts payable, I also strongly believe in it.
Both sides of the coin
There are two sides to every payment: creating and receiving. When it comes to consumer payments, both sides are straightforward, especially with today’s technology. But in the world of corporate payments, the complexity of the processes adds friction between them. The goal of accounts payable is to manage cash flow by holding onto money for as long as possible. This puts them at odds with accounts receivable, which want to be paid as quickly as possible. Digitizing transactions does not effectively resolve the complexity or friction between sender and receiver processes. And the lack of consideration can make the problem worse.
For example, funds sent from accounts payable may reach their provider’s bank more quickly with card or ACH payments, but a complicated payment request process can waste valuable accounts receivable service time anyway. Without a way to streamline the process from start to finish, simply switching to electronic means in a few locations may not deliver the time savings businesses hope to achieve.
What is the solution ?
Portals work well for large companies that can dictate the terms of doing business to their small customers. But their clients may not be happy that their own interests are dictated to them. And if you don’t have that kind of authority, there’s a good chance your portal won’t be used because you’ve created a one-time process for your customers, making their customers’ lives harder.
Electronic means can help payables make last-minute payments, and they would rather pay by card than ACH, as they can make money on card rebates. But convincing providers to accept the card is often a challenge because the fees that come with it can quickly become expensive. Meanwhile, authorizing vendors for ACH results in AP handling large amounts of sensitive bank account data.
Many organizations end up “touching” electronic payments because of these activation challenges. This leaves them with the management of four different payment workflows: card, ACH, wire transfer, and many checks. That’s the problem payment automation vendors are solving by supporting the vendor activation process, maximizing card discounts, and simplifying AP workflows.
While both parties may agree that digital payments are the future, they are stuck between a rock and a hard place without automation.
Opening the way
Fintech companies like Nvoicepay and Billtrust automate debts and receivables separately, and that’s a big step forward. I believe the next generation of solutions will bring the two worlds together on a flexible and 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 the form of dynamic discounts in exchange for quick payment and a streamlined money request process through the platform.
On the buyers’ side, easy access to supply chain finance could allow them to take advantage of such discounts while extending payment terms. The purchasing organization takes its two percent discount and gives half a percent to the fundraising organization, paying the invoice in the discount window. Then, the purchasing organization pays the fundraising organization within 30 days. Payables manages cash, receives part of the discount and a discount if paying by card.
Put it all together
The key to creating these win-win outcomes is having a technology platform that uses data to provide convenience and choice, enabling organizations to meet all of their needs at all times. For example, if your cash flow situation is good, you cannot offer discounts or offer them more selectively. If you are working with many small vendors with tight margins, consider removing the card option from the table.
These are not new ideas, but they have not yet been effectively dealt with with technology. Historically, we have tried to do this through EDI (Electronic Data Interchange), a computer-to-computer communication standard developed in the 1960s. It has always been very clunky, and it’s cumbersome for the volume and speed of data. 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 are adding payout data to ACH Payments, but that’s not a complete answer. Technology has yet to be put in place to integrate data into payment flows.
Suppose you view fintech innovation in the consumer payments market as a leading indicator. In this case, it was less about new payment products and more about using the technology to send and receive money transparently, regardless of the electronic network used.
In B2B payments, fintechs have changed the game by viewing payments as a business process rather than a collection of products, and have built software solutions to automate these workflows. With remote working providing an additional incentive, many other organizations are adopting electronic payment methods. This, in turn, makes the data more available to continue developing digital platforms. Whoever gets there first has a good chance of becoming the main player, but you won’t get there at all if you don’t build for both sides of the equation.
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 financial technology and payments industry.
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