Why B2B Payment Pain Points Go Far Beyond The AP Department

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The global pandemic has, no doubt, changed the B2B payments landscape forever. The name of the game today is digitization, with paper checks and cash no longer viable payment methods in the context of moving funds from one business to another.

In Australia, Adrian Floate, managing director of Cirralto, says the COVID-19 crisis has fast-tracked B2B payments modernization.

“If you were a business that was used to accepting cash payments, this is a stark change that has literally altered the way you bank, the way you deal with creditors, and the way you operate your business,” he recently told PYMNTS. “Electronic payments and digital business processes have been fast-forwarded by as much as 10 years in the last few months.”

Yet the impact of B2B payments digitization has a ripple effect that reaches far beyond the accounts payable and accounts receivable department. As organizations shift from cash and paper checks towards electronic payment methods like cards, there are also major implications for the supply chain at-large, Floate explained.

The Commercial Card Catalyst

While in the U.S., the paper check may be considered by many to be the biggest B2B payment challenge, in Australia, Floate said it’s a lack of access to capital that has emerged as the top challenge.

“As we’ve had this big economic contraction, there have been parts of the economy that have gotten excessive amounts of money — and other parts of the economy that are completely starved of it,” he said.

As a result, card adoption has been on the rise in the B2B payments space thanks to the tool’s ability to provide 45 days of capital float after purchase. While cards are highly accessible, even to smaller businesses, this shift in payment behavior introduces new challenges ahead.

What was traditionally a system that relied upon cash on delivery (COD) can no longer operate the way it used to when cash is out of the picture. For some of the smallest mom-and-pop shops, a procurement process that once involved simply taking money out of the till to buy supplies is similarly no longer a viable one.

Ensuring card acceptance will become a critical issue to keep cash flowing through supply chains, said Floate, who noted that the issue of card surcharges will also likely introduce a new kind of pain point into the B2B payments flow.

“In the near future,” he said, “it is going to be a thing that penetrates the value chain right through to distributor collections from their retail customers … I think accepting surcharging, and adopting ways to pay it forward, is going to be a big challenge for businesses.”

Optimizing The Logistics-Payments Link

The effects of the pandemic on global supply chains are wide-reaching, and when it comes to B2B payments, the impact has come to light in other ways beyond digitization.

“What I’d like to stress here is that it’s not just payments, it’s also things like inventory,” Floate said.

In the wake of businesses stocking up on items and supplies, there was a higher rate of returns — and reimbursements — with some vendors selling inventory that wasn’t yet available. It’s a dual-sided pain point for both buyer and supplier, and one that Floate noted also exposed areas of B2B payments risk throughout the supply chain.

The result has been an effort to enhance risk by adopting more flexible B2B payment terms and Know Your Customer (and Know Your Supplier) checks. In the longer term, there is also a drive toward digitization of trade and commerce, as well as shifts in inventory management strategy as suppliers that sold inventory they didn’t yet have were stuck with credit they couldn’t allocate back into the business. In this scenario, a customer either overpays, or doesn’t pay at all, and neither is good for the flow of cash through supply chains.

“There is a real need to make sure that businesses get their inventory on-hand right, and they really understand that when they sell a product, they [must be able to] supply it,” Floate noted, adding that the COD strategy will be particularly difficult in a contactless world considering these fulfilment challenges.

At the same time, while digitization of B2B eCommerce, inventory management, warehousing, logistics and other workflows can help alleviate some of these challenges, the majority of solutions today are built for the buy-side, making adoption a hurdle, said Floate.

Also, key to addressing these pain points are risk mitigation efforts like stringent credit controls and Know Your Customer assessments, which can ensure that the credit that is extended to customers is done so responsibly.

While digitization has certainly introduced many benefits to B2B commerce, it has changed the paradigm of how trade is done, with far-reaching effects on the flow of both goods and money between businesses. Organizations will have to take a multi-pronged approach to mitigate risk and readying themselves for the future of trade, and that means not only looking outward to third-party behavior but also ensuring that organizations are watching their own actions, too.

“You want to have insights into your customers’ behavior better than you ever have before,” said Floate. “But equally, you want the same level of insight into your stock-on-hand behavior.”

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