The Compelling Benefits of B2B Payments

Based on research from a series of IOFM Virtual Town Hall Meetings in 2020, 71% percent of accounts payable (AP) leaders plan to deploy more automation this year. In fact, 44% of AP leaders that describe their department as being “largely automated” have plans to deploy more technology. Electronic payments will undoubtedly rise as AP departments automate.  

The operational benefits of migrating to electronic payments are clear. Compared to electronic payment methods, paper checks cost more, take longer to process, result in more errors, and provide less visibility. ACH and virtual card payments also are less vulnerable to fraud than paper checks.    

Yet the working capital improvements provided by electronic payments may be the top reason for businesses to ditch paper checks. B2B electronic payments improve working capital in a variety of ways:      

1. 1. Paying suppliers electronically frees up cash. Businesses are tightening their belts these days. One way to reduce operational inefficiencies is to pay suppliers electronically. AP staff waste time printing checks and preparing remittance documents, tracking down approvals, stuffing checks into envelopes, making special trips to the post office, responding to calls and e-mails from suppliers about the status of checks, dealing with their bank to replace lost checks, and reconciling bank statements. With labor costs representing 60 percent or more of the typical AP department’s budget, the time spent managing check payments adds up fast.  B2B electronic payment solutions eliminate the manual tasks that bog AP departments down. Suppliers can be paid in their preferred method from a single platform with just a few clicks of the mouse. Remittance details are automatically generated and sent to the supplier. Payments are reconciled in real-time. The time and money saved by paying suppliers electronically can be reinvested into growth-generating activities.

   2. Paying suppliers electronically creates more early payment discount opportunities. IOFM research finds that eighty percent of suppliers are willing to exchange a discount on the invoice-due amount for earlier payment. However, it takes so long for most AP departments to approve invoices and cut and mail checks that the discount window has often slammed shut. With the average early payment discount standing at 2 percent, the savings from faster payments can add up quick. B2B electronic payments, combined with an automated invoice processing solution, make it easier for buyers to take advantage of early payment discount offers. B2B electronic payments can be made as soon as the same day and some electronic payment solutions offer supply chain financing – a way to pay suppliers early without using cash on the buyer’s balance sheet. A third party pays the supplier early in exchange for a small discount, while the buyer pays the third party at term and shares in the discount revenue.
   3. Paying suppliers electronically can extend Day’s Payable Outstanding (DPO). Freeing up cash can help a business reduce costly borrowing, pay down debt, and invest in growth-generating activities such as launching a new product or expanding into new markets. While many businesses try to free up cash by extending payment terms, that can affect contracts and strain supplier relationships. Paying suppliers with virtual cards can extend a company’s Day’s Payable Outstanding (DPO) – the average amount of time it takes to pay a supplier – without requiring changes to existing payment terms. Since the funding for the card program is provided by the buyer’s bank, and the payback period only kicks in once the payment is initiated, businesses can gain three weeks or more of new cash flow. Suppliers are still paid on time, but the buyer has more cash for growth-generating initiatives.
   4. Paying suppliers electronically improves visibility into cash flow and corporate spending. Tightly managing cash and spending means more in turbulent economic times. B2B electronic payments put smart insights at the fingertips of CFOs and other decision-makers. Real-time graphical dashboards show pending, in process, and completed payments. Drill down capabilities enable finance leaders to identify trends. Mobile access keeps finance leaders in-the-know when on-the-go. Data exports accelerate the delivery of payments information downstream. Plus, ad hoc reports facilitate nearly every reporting request. What’s more, self-service online portals enable suppliers to see where payments stand.  

AP leaders are rightfully excited about the operational benefits of paying suppliers electronically.   

B2B electronic payments help businesses of all sizes optimize their working capital by freeing up cash, capturing more early payment discounts, extending DPO, and improving visibility.   

These working capital benefits make B2B electronic payments a powerful tool in times like these.  

My team at ActiveWorx will be at Money 20/20 next week in Las Vegas. If you're attending and would like to connect for a brief conversation on the vast benefits and value of a comprehensive B2B payments solution, please reach out: mdignen@activeworx.com.