B2B payment digitalization has been underway for years, but the COVID-19 pandemic is accelerating the transition from manual processes toward interconnected, automated financial operations. Businesses of all sizes are reassessing how they send and receive payments as disruptions expose the limitations of checks, paper invoices, and other labor-intensive processes.
This transformation extends beyond the payment transaction itself. Accounts payable, accounts receivable, invoice management, reconciliation, and cash management are increasingly being viewed as parts of a connected financial workflow. Automation and emerging technologies can help businesses reduce processing costs, improve efficiency, and address risks associated with manual operations.
This posting in The Paypers is about what is mostly now a familiar topic, especially for those who follow the payments industry and financial operations in general. We have been covering the longer term trend in B2B payments now for many years, and that is directional towards digital processes in the cash cycle being interconnected. That longer term trend has been underway for more than a decade, but of course the onset of the pandemic (now almost 2.5 years) and policies that shut down businesses and industries for variable timeframes have resulted in many things poised to be further automated and more quickly, to overcome cash management issues. So the author goes through a list of things that are worth considering for this eventual transformation.
‘SMEs are changing how their payments operate. According to a 2020 Mastercard survey, 82% of SMEs surveyed had implemented a change in the way they receive and send payments, and 67% explained those changes were caused by the COVID-19 pandemic. Interviews led by EDC among large corporates also revealed the pandemic had a strong impact and acted as a catalyst to start new projects or accelerate existing projects related to digital B2B processes and payments for both AP (accounts payable) and AR (accounts receivable).
Overall, COVID-19 has accelerated the awareness towards digital B2B processes and payments, and it has created momentum to implement projects related to digital B2B.’
Part of the unfolding scenario is related to a more complete view of financial operations, which can be encapsulated with the term “payments” but involves a number of systems and processes that incorporate the full flow of cash cycle operations. This flow is increasingly being viewed as an interconnected operation that starts with a buying decision and ends with reconciliation, and then gets continuously replicated/enhanced through automation and latest gen tech tools (ML, etc). The author points out some of these so worth a quick review to keep you on top of where things are going.
‘B2B payment industry providers have tackled these issues over time, allowing the B2B value chain to be constantly reshaped by new technologies and ideas. For instance, it was estimated more than 80% of small US businesses were still manually processing and settling invoices by cheque in 2018. Companies could generate significant benefits by using digital processes, with automating invoice management reducing processing costs by 81%…
Each step of AP and AR done manually incurs high costs and significantly increases the risks of cyber fraud, human errors, delays, and overall inefficiency in the value chain. For instance, The Institute of Finance and Management quantified that the annual volume of losses from payments made to fraudsters because of business email compromises reached USD 3 billion in 2017.’
The pandemic has provided additional momentum for B2B payment digitalization, encouraging businesses to accelerate projects that might otherwise have taken years to implement. The potential benefits extend throughout the cash cycle, from invoice processing and payment execution to reconciliation and financial management.
As companies continue modernizing AP and AR operations, reducing manual intervention can deliver significant improvements in cost, speed, accuracy, and risk management. The long-term transition toward interconnected digital financial processes was already underway, but the disruptions created by COVID-19 are making the need for that transformation increasingly difficult for businesses to ignore.
Overview by Steve Murphy, Director, Commercial and Enterprise Payments Advisory Service at Mercator Advisory Group
