Over the last few years, it has become evident to many that the B2B payments space is ripe (and longing) for innovation. A lot has happened to bring the space forward, but this is only the beginning. There are more startups focused on this space than ever before, some trying to innovate at a broad level, others focusing on niches such as foreign exchange or cross-border payments. In any case, it’s safe to say that the manner in which businesses make and receive payments is going to shift over the next few years.
In my view, a primary reason for this much-needed shift is data. Whether sending or receiving, businesses want to get more than the dollar amount from payments; they want the information that goes with it. Data is one of the most valued pieces of information that exists within a payment – who is being paid, for what, when, how, what currency is being used, what bank is housing the transaction, what bank account, etc. Without this kind of information, a payment is just a number and, in too many cases, there is a tremendous amount of time and resources that are spent figuring out the important data elements.
In fact, there is such a lack of information throughout the payments process that an entire industry exists for the sole purpose of recovering overpayments, duplicate payments and other payments errors. It seems easy enough to avoid such errors but what about when you have thousands of suppliers globally, multiple ERP systems, multiple banks and accounts, no standardized process and so on and so forth.
There are also a ton of intelligence and analytics that are generated from the payments process itself that can add great value. Unfortunately, it is almost impossible to get any level of accuracy here unless the transaction and the process itself is digital. Here are a few examples:
- Information such as the percentage of on-time payments is a good determinant of process control and efficiency but also affects supplier relationships.
- Information and analysis of supplier payment terms can help to establish a plan/process to capture more early payment discounts.
- Understanding upcoming requirements for cross-border payments helps with forex hedging.
- Identifying the best type of payment for every type of transaction (e.g., PCard for payments below $1000).
Of course, all of the above is improved when business processes are automated and especially when businesses are connected. Imagine all of this working within a network of connected trading partners or even an entire supply chain, connected across multiple tiers of suppliers.
The power of the network
One undeniable fact about the future is that businesses will be connected digitally. This is already happening around the world in a big way. Businesses connected to each other in a network mean digital transactions, real-time communication and information exchange; with the right model it also means the ability for third parties to add value to the network. The common denominator that everyone in the network has access to is data and every single transaction, action, comment, approval, rejection generates data.
Consider Linkedin or Facebook. These are networks that connect people together on a common platform. What makes these networks so valuable? It’s the user-generated data that flows across the network and the intelligence that can be gained from understanding this data. Apps that are developed on top of these platforms to add value to the network leverage the underlying data. The same goes for businesses within a network. Transactional data such as orders, invoices, shipment notices, delivery notes, supplier data and much more can be linked together to make sense not only of payments but numerous B2B processes.
Quite often in a B2B setting, hundreds of invoices are paid all at once with one lump sum payment. Too often this will cause several issues on both the buyer and supplier side with having to reconcile the payment to the order/invoice and each item that is being paid for. On the other hand, if the two businesses were connected and transacting within a network, all the information would be at their fingertips and there wouldn’t be a lag in receiving the information either (which is often the case with ERP systems).
As mentioned before, certain networks are designed to be open, allowing third parties to build apps that add new capabilities for users. A good example is a bank. With access to a network of connected businesses and detailed transaction information, banks would be able to have a better view of their customers’ supply chains and the processes within them. They would have access to information that would enable them to spot inefficiencies in the financial supply chain. Consider an invoice that offers a discount if the customer pays 10 days after receiving the invoice as opposed to the standard 60-day terms. Assuming that the buying organization’s accounts payable process is automated and efficient and that they have the funds to pay early, this is a no-brainer. Pay early, get a discount and generate a fairly high return with minimal risk. What happens if the customer still wants the discount but doesn’t have the cash or if the supplier still wants to be paid earlier but the customer is unwilling – enter the connected bank. Because the bank is connected to the same network and can view details of the transaction, they could provide the funds at a fee (i.e., supply chain finance).
So the possibilities are almost endless when you have trading partners connected on the same platform and you enable third parties to come in and add value. What we can learn from simple processes such as making or receiving payments is a great deal, given the right environment.
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