Every member of the supply chain is now impacted by inefficient manual processes thanks to COVID-19. As a result, U.S. businesses are accelerating their plans to move from paper to digital B2B payments. An era of digital transformation has arrived.
To learn more about digital acceleration in the realm of B2B payments, PaymentsJournal sat down with Harry Harnett, EVP of Treasury Payables & Receivables Product Execution at BBVA, Sam Kies, Director of Account Management at Mastercard, and Steve Murphy, Director of Commercial & Enterprise Payments Advisory Service at Mercator Advisory Group.
The state of B2B payments
In late 2019, various themes that had been building over time were expected to remain prominent in the B2B space. Collaboration between fintechs and banks, globalization efforts, resourcefulness, and risk management were top of mind for banks and businesses looking to succeed.
Then came COVID-19. “As the pandemic was declared and various forms of lockdowns were deployed in most U.S. states and across the globe, the work-from-home phenomenon caused most businesses to revisit their methods of conducting financial operations,” said Murphy. “The most immediate needs of those [businesses], of course, was the basic need to make and receive payments.”
Consequently, digital acceleration became top-of-mind for businesses looking to remain successful in the new world. This was particularly true for businesses that relied heavily on paper and manual processes, which are particularly inefficient with a largely remote workforce.
“We see those trends toward digital really manifesting, and particularly B2B payments with the importance of a digital card,” said Kies. “I think that [the pandemic] is really causing folks to look at their overall structure and [ask] what [they] can bring forward that will make a lasting impact.”
Many B2B business payments are still done through checks
Even though the shift away from manual processes including paper checks has been an area of discussion for some time, plenty of businesses still use them. According to the most recent AFP electronic payments survey, 42% of B2B business payments were conducted via check in 2019.
The pandemic is changing that. “If you take a look at the last 10 years, the decline in B2B check usage is about 2.5% per year, which certainly doesn’t align with the quality of the capabilities that have been out there and [are] being launched, especially in the last five years,” said Murphy. While the official numbers for 2020 are not yet available, “that decline in checks is probably going to be more in the 5% to 10% range,” he added.
Digitization isn’t new, but it is more important than ever
Digital technologies for business payments were already available prior to COVID-19. Organizations such as BBVA have been equipped with the services and technologies to enable digitization for years. “The challenge [of digitizing B2B payments]… is more about increasing client adoption and focusing their prioritization of these services to really become normal business operations,” said Harnett.
Prior to the pandemic, payment processing inefficiencies were predominantly experienced by buyers. Now, the entire supply chain suffers. “COVID and the whole work-from-home dynamic immediately complicated how invoices are being sent, how they’re being received, how they’re being processed, and even how payments are now being made,” he added.
In other words, the historical ‘if it ain’t broke, don’t fix it’ mindset no longer applies. “[Payment processing] inefficiencies extended to their suppliers, who are receiving these manual paper-based payment types and now receiving them much later than they had anticipated, which presents their own challenges [with] how they’re managing their cash flow, their inventory, and their operations,” Kies explained.
Ultimately, the implications that inefficient manual processes have on both buyers and suppliers are pointing to a widely held belief that the B2B payments industry needs to move beyond checks.
The path to digitization doesn’t need to be intimidating
It’s normal for organizations to feel intimidated by the complexities of digitizing their B2B payments approach. It can be challenging to identify where to invest and where to begin transformation. Businesses need to ask themselves where they want to lie on the innovation curve: will they be an innovator or a fast follower?
But digitization doesn’t have to be an all-or-nothing approach. Rather, businesses can benefit from incremental changes toward digitization. With a strategic partner, businesses can more easily determine which changes should be prioritized. “As their strategic banking partner, it helps that we are already supporting many of their clients’ cash flow activities,” said Harnett.
BBVA has seen increased interest with virtual cards, integrated payable solutions, and electronic invoicing tools from their clients and prospective clients. In other words, businesses are recognizing the value of digitizing.
“The benefits of payment digitization, they’re wide ranging, including everything from process improvement, revenue generation, and cost savings, even protecting clients against potential fraud threats. I really think the key is for organizations to realize the value and simply prepare to get started,” Harnett concluded.