A recent Deloitte report provided insights into the opportunities and challenges of B2B middle market payments. This specific market of small and medium-sized businesses makes up a considerable part of the U.S. economy, but struggles to get the type of payments solutions they need despite the ongoing digital transformation of business.
Key B2B Pain Points
Deloitte identified some key pain points and areas where the right payment solution could provide relief. The pain points include fraud risk, high processing costs, payment delays, manual accounts payment processing, remittance data processing, outdated supplier payment methods, and limited transaction visibility.
In terms of costs, Deloitte noted that it can cost a company $8 to process one supplier payment through their current accounts payable process. Average payment times can take up to 30 days with 47 percent of suppliers reporting late payments. Often, the ongoing use of manual processes is the reason for these payment pain points. Other issues behind the pain points include missing data elements, non-standardized file formats, and no back office support for automated remittances.
Innovation is now starting to address these B2B payment needs by leveraging one of the most widely used business channels: email.
Similar to some of the consumer payment apps that provide a way to use an email address to pay a friend, colleague, or family member, it’s now possible to use a similar format for a B2B payment. Combining an ACH payment application programming interface (API) with a payment platform that uses stored email addresses to make payments, a company can pay suppliers quickly and cost-effectively.
Since it involves a platform that small to medium businesses already feel comfortable with, it may be the ideal way to transition these companies away from paper checks and to digital business payments.
For example, let’s look at some common B2B payments a small company might make. These vendors might include the office cleaning company, the bottled water company, the snack supply business, and payments to the tech support firm that always fixes the computers and network.
Instead of writing a paper check to each of them, which then requires time as well as material and labor costs, you can send them each payments via their email and send the transaction records to your accounting system for reconciliation. That means no paper supplies or manual tasks to do.
More Change Required
Even with this type of B2B payment starting to address so many of the aforementioned pain points, the business check remains. The business check continues to be used for payments between suppliers and buyers because of the information listed on the check as a basis for tracking.
However, the new email payment technology can also cover that need, providing key information in a digital receipt that details what the transaction was for so that both supplier and buyer can record the information.
Another step forward is the ability to embed an invoice or recurring invoice within an email, which provides all the information about the transaction and a link to a payment processing platform. Everything is completed within the email, which can also serve as a bridge to move companies away from paper invoicing and checks. Companies like PayPal and P2P companies like Venmo are also using the concept of email payments.
A Shift in Mindset
It may take time just as it did for businesses to transition from letters and faxes to email. In using a known channel like email, there is a greater likelihood that this will influence the move from checks to digital B2B payments. The important part is that the change in B2B payments has started in a direction that has potential.