Business-to-business (B2B) payments and processes have become increasingly digital during the last decade. The COVID-19 pandemic is considered to have had a significant impact on B2B payments, acting as a catalyst for further accelerating the digitalisation of both accounts receivable and payable. As a result, the B2B payments ecosystem has seen a surge in investment to improve product development and enable the deployment of new use cases to reduce payment-related pain points for businesses.
In this article, Edgar, Dunn & Company (EDC) is highlighting some of the key trends that are analysed in a white paper to be published next month on the increasing digitalisation of B2B payments.
How did COVID-19 affect SME and corporate B2B payments?
During the pandemic, lockdowns and other restrictions meant that SMEs (small and medium enterprises) and corporates were unable to process paper-based activities and payments, resulting in significant issues in the B2B value chain. This triggered increasing awareness towards the need to digitalise both processes and payments to increase efficiency and generate cost savings.
SMEs are changing how their payments operate. According to a 2020 Mastercard survey, 82% of SMEs surveyed had implemented a change in the way they receive and send payments, and 67% explained those changes were caused by the COVID-19 pandemic. Interviews led by EDC among large corporates also revealed the pandemic had a strong impact and acted as a catalyst to start new projects or accelerate existing projects related to digital B2B processes and payments for both AP (accounts payable) and AR (accounts receivable).
Overall, COVID-19 has accelerated the awareness towards digital B2B processes and payments, and it has created momentum to implement projects related to digital B2B.
How did the B2B payment value chain evolve to automate and optimise payments?
Evolution of the role of actors in the value chain
The B2B payment value chain has experienced significant changes in recent years, and many actors now intend to play an increasing role in the value chain:
to create a stronger value proposition to their clients in the market they operate, either AP or AR
to expand to other parts of the value chain partnering with actors to broaden their range of services
to create new ecosystems that include both AP and AR to connect corporates and SMEs for all their B2B process and payment needs.
Overview of the role of actors in the B2B payment value chain
Need to address B2B pain points
Companies need to identify the payment practices that hinder B2B growth to better optimise their internal processes and resources. Four key hurdles hampering success within AP and AR departments have been identified:
outdated payment methods such as cheques
lack of accounting, financial, and compliance controls
manual B2B payment, approval processes, and lack of a proper AP structure
financial departments working in silos with different processes.
B2B payment industry providers have tackled these issues over time, allowing the B2B value chain to be constantly reshaped by new technologies and ideas. For instance, it was estimated more than 80% of small US businesses were still manually processing and settling invoices by cheque in 2018. Companies could generate significant benefits by using digital processes, with automating invoice management reducing processing costs by 81%.
Each step of AP and AR done manually incurs high costs and significantly increases the risks of cyber fraud, human errors, delays, and overall inefficiency in the value chain. For instance, The Institute of Finance and Management quantified that the annual volume of losses from payments made to fraudsters because of business email compromises reached USD 3 billion in 2017.
AP/AR optimisation engine
Once AP and AR system errors are significantly reduced, corporates can add an optimisation layer to their automated solution. An optimisation engine can be embedded in the organisation’s systems and configured according to working capital policies set by corporates.
This engine will provide recommendations for each payment to be carried out with the objective to track opportunities to maximise discounts (e.g. rebates and early payments), maximise Payable Days (DPO), and minimise transaction costs (e.g. optimal payment methods). This will identify potential vendors to find the optimal discount/time opportunities, available rails, time, amount, and relationship details.
Description of AP/AR optimisation engine
Overall, the pandemic had significant impacts on B2B processes and payments which enabled organisations to witness the overall inefficiency in manual processes and payments. Companies can generate significant benefits by leveraging digital solutions – and now is the time to create relevant value propositions addressing the needs of both SMEs and corporates.
About Grégoire Toussaint
Grégoire Toussaint is a Director at Edgar, Dunn & Company with responsibility for the Paris office and leads EDC’s B2B payments practice globally. Grégoire has more than 15 years of consulting payments experience with EDC in business strategy for financial services clients in Asia, Europe, Middle East, and the Americas.
About Edgar, Dunn & Company
Edgar, Dunn & Company (EDC) is an independent global payments consultancy. The company is widely regarded as a trusted adviser, providing a full range of strategy consulting services, expertise, and market insights. EDC expertise includes M&A due diligence, legal and regulatory support across the payments ecosystem, fintech, mobile payments, digitalisation of retail and corporate payments, and financial services.
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