This e-book outlines the changing dynamics in the B2B payments landscape within mid-sized businesses. Understand the challenges involved in traditional payment methods and how it affects the overall cash flow. Explore key market trends and emerging digital payment methods that provide opportunities to improve cash flow and make a positive impact on working capital
Cash plays a crucial role in the survival of any business and the ongoing global crisis has prompted businesses to re-evaluate their payment processes to deal with cash flow issues. Late payments coupled with delayed processing for traditional methods of payment such as cash and checks adds on to the struggle of preserving cash. For many mid-sized businesses, paper-checks are still relevant but it comes with a steep price to pay. The major concern is the manual processing time as they take a long time to reflect on the open A/R on top of being error and fraud-prone.
Digital payment methods have emerged to address these pain points by streamlining payment processing with added benefits such as real-time payment, better visibility, compliance, fraud protection, and improved cash flow.
According to a study by Mastercard of SMEs spread across North America, 76 percent of businesses say that the pandemic has pushed them to become digitally equipped
When it comes down to the question of survival, cash flow is oxygen for businesses. Having better visibility and getting paid faster with lower transaction fees are critical for finance executives. Real-time payment methods can accelerate cash flow while avoiding the high cost of manually processing traditional paper-based checks. Owing to digitalized payment methods, the faster payment cycle would result in positive cash flow.
Traditionally, invoices, receipts, and disbursements were all manually paid and processed either through cash or checks. These payment methods resulted in an increasing rate of financial complexity, delays, and risk. Fast forward to the present, digitalization has proven to be a key enabler to change the entire landscape of payments.
While traditional paper check-based payment systems continue to drive the majority of the cash management cycle, there’s an ongoing world-wide reform to switch to real-time payments. Let’s go over the basic payment systems in place and understand the necessity of improving efficiency with reduced operational risks.
Figure: Different Payment Methods
According to Mastercard, the financial sector within the B2B space stands at a range of USD 25 trillion, annually.
As reported by Deloitte, mid-sized businesses are a key player in the US economy: the total revenues round to over USD 6.6 trillion, making them a developing leader in the economy
Furthermore, according to the National Middle Market Summit, up to 55 percent of businesses face challenging issues in terms of maintaining a balanced working capital. With opportunities in obtaining valuable information through payments, mid-sized B2B companies can leverage digitally produced insights to address complex problems such as handling the processing of consumer payments while managing regulatory, compliance, and cost-based challenges.
Let’s go over some of the trends that continue to redefine the entire payment landscape.
In order to stay ahead of the curve, it’s important to recognize and address multiple issues in terms of operation and delivery service of payments. Conventional business payment structures continue to face vexing challenges in terms of increasing high-levels of usability, flexibility, and responsiveness in transactions. Here are some of the challenges faced by businesses –
With poor authorization controls for B2B transactions, the risk of fraud is very high. Some of the top risk segments include check forgery and cyber fraud. As per reports by the American Bankers Association, 60 % of attempted fraud is check related fraud. Businesses following a paper-based manual process are much more likely to be exposed to these risks involved in B2B payments.
With disparate payment methods and processing challenges, there is a lack of visibility into additional costs, error-prone delays, and chargebacks in individual accounts. Furthermore, companies are not able to take care of payment disputes as it is impossible to get a clear picture of finances.
In order to have a competitive advantage, businesses need to accommodate the buyer’s preferred method of payment. The availability of multiple payment formats such as Same-day ACH, Virtual Cards and Wire makes it possible for businesses to get real-time payments.
Digital payments are not just limited to cards and payment portals, businesses are now taking advantage of Remote Deposits for check payments. Customers can conveniently make remote check deposits using a mobile device. On the customer side, this saves a lot of time, money, and efforts of having to go to banks for making a physical deposit. The adaptability of these payment formats helps in taking better cash management and working capital decisions.
Figure: Remote Deposit Capture Process
1. Better Payment Processing
2. Better Compliance
To maintain a secure payment framework – Payment Card Industry (PCI) compliance is mandated by credit card companies. The Payment Card Industry Data Security Standard (PCI DSS) is defined as a set of requirements that ensure secure processing, storing, or transmission of credit card information.
New age PCI DSS compliant solutions provide a frictionless experience by protecting the business along with their customers’ data. This ensures that the payment information is securely handled. Electronic payments are offered with multi-layered security that encrypts the payment information. For example, virtual cards use the method of tokenization which restricts payment to a fixed amount of transaction. This process can provide better working capital benefits with improved control of the overall cash flow. Opting for a PCI DSS compliant solution may come with high costs so it’s advisable to carefully read through the payment terms before settling on a solution.
3. Better Cash Flow and Visibility
4. Improved Customer Experience
The availability of multiple payment formats makes it easier for customers to pay for invoices on time. This will result in a reduction in the overhead of the open A/R.
Figure: Benefits of Enabling Digital Payments
In the B2B payments space, adapting to the changing needs of the business and customers will have a ripple effect going forward. Businesses must determine where they stand in their digital payment journey. Mid-sized business owners can benefit from this digital transformation with faster payments, better customer experience, and improved operational efficiency leading to positive cash flow. The first step is to determine the overall cost and benefits of different payment methods that specifically cater to their business goals.
The HighRadius RadiusOne A/R Suite includes a set of AI-powered solutions designed to support A/R processing for midsized companies across industries with a complete order-to-cash solution. Automate and fast-track key accounts receivable functions with RadiusOne A/R Apps, pre-loaded with industry best-practices and ready-to-use with popular ERPs including NetSuite, Sage Intacct, and Microsoft Dynamics.
The HighRadius RadiusOne A/R Suite includes automation solutions for processes including eInvoicing & Collections, Cash Reconciliation, and Credit Risk Management.
RadiusOne A/R apps are designed to suit the needs of A/R teams and aim at automating labor-intensive processes, maximizing working capital, and enabling faster cash conversion. Click here to learn more.
HighRadius solutions have a proven track record of optimizing cash flow, reducing days sales outstanding (DSO) and bad debt, and increasing operational efficiency so that companies may achieve strong ROI in just a few months.
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HighRadius Integrated Receivables Software Platform is the world's only end-to-end accounts receivable software platform to lower DSO and bad-debt, automate cash posting, speed-up collections, and dispute resolution, and improve team productivity. It leverages RivanaTM Artificial Intelligence for Accounts Receivable to convert receivables faster and more effectively by using machine learning for accurate decision making across both credit and receivable processes and also enables suppliers to digitally connect with buyers via the radiusOneTM network, closing the loop from the supplier accounts receivable process to the buyer accounts payable process. Integrated Receivables have been divided into 6 distinct applications: Credit Software, EIPP Software, Cash Application Software, Deductions Software, Collections Software, and ERP Payment Gateway - covering the entire gamut of credit-to-cash.