In the bid to modernize B2B payments, accounts receivable (AR) and accounts payable (AP) need to work together.
To that end, one goal is to integrate payments, streamlining discrete functions of paying vendors and receiving payments from buyers across companies. It’s important to go about breaking down silos within companies, too, where AP and AR once functioned as separate departments without clear lines of communication.
With the pandemic, there’s an elevated need for firms to have a more real-time view of cash, as well as real-time insight into the health and stability of their trading partners.
As part of the ongoing B2B Payments PYMNTS TV programming, Alan Koenigsberg, global head of new payment flows at Visa New Business Solutions, and five panelists weighed in on how business payment flows can be redefined.
Panelists included Jay Dearborn, president at WEX Corporate Payments; Greg Bloh, CEO at Transcard; Muhammad Chbib, CEO at Tradeling; Simon Barker, CEO at Conferma Pay; and Brad Garfield, head of product for commercial cards and comprehensive payables in global transaction services at Bank of America.
The panelists noted that in order for treasurers and CFOs to gain real-time insights into cash positions and relationships with enterprises, automation of traditionally manual processes is critical.
How to get there? Banks, they said, must give corporate clients the tools they need to modernize and thrive – but in many cases, must also forge partnerships with tech-savvy FinTechs to create digital roadmaps for 21st-century buyer/supplier relationships.
Koenigsberg noted that the AP/AR ecosystem has historically been fragmented. Despite a slew of sophisticated AP/AR solutions in the market, there still exists a disconnect, where manual processes are a hallmark of activities that occur before and after transactions actually happen.
At a high level, Transcard’s Bloh noted that bringing AR and AP together requires a holistic approach – embracing changes in technology, processes and payments – and in the end, perhaps, delivering a whole new model of interaction.
Describing the process inefficiencies, Bloh said, “the payment stream, the money and the data were flowing in two separate paths … a lot of the silos are batch process-driven.”
Delving Into Card Acceptance
The conversation turned to whether card schemes are still relevant in the current environment – and the panelists noted that they are, indeed, necessary.
Many businesses, Bloh contended, have been built on virtual card interchange (which has been problematic). Acceptance rates hover in the mid-single-digit percentage rates.
As Bloh remarked to the panel, “Eighty-two percent of the payments still remain via ACH, and that is not solving any sort of problem.” Transcard, he said, has taken the approach of directly connecting buyers and suppliers and connecting ERP systems to one another – with payments and data flowing between the two entities, sans intermediaries. Bloh said that direct connectivity can enable real-time confirmation of invoice information and real-time reconciliation of payments, among other activities.
Against that backdrop, he said, banks are “stepping up to deliver better solutions in both accounts receivable and payable, because it’s in their interest to be central in the moment for all the changes that are happening.”
Barker stated that cards are universal, standardized and increasingly utilized for international transactions. Each of those attributes is valuable amid the pandemic, where decentralized workforces have become commonplace and mobile payments have gained ground.
The panelists contended that through the past several years, the overall volume of virtual cards has been on the rise, but card acceptance is not increasing at the same pace.
As Garfield noted, buyers want to see the highest rebate percentages to maximize the financial impact of spending on cards, but suppliers are more reticent to accept those payment methods. Garfield said that if the banking industry can get more spending on cards, put lower interchange rates in place, pay out buyers and make the financials work across the ecosystem, then acceptance rates will improve.
WEX’s Dearborn said his firm has been experimenting with different interchange products with the networks, examining the willingness of corporates to use virtual cards across different types of industries, and across a range of buyer and supplier dynamics and payment terms.
“The virtual card is a helpful tool, as a one-time-use, 16-digit number associated with an invoice,” Dearborn told the panel. “It’s quite a unique tool, with all the protections of the network associated with it.”
Trusted Partnerships – FinTechs And Marketplaces
Along the journey to modernize payments, corporates should turn to their treasury bank partners as they seek to streamline back-office functions, according to the panel.
WEX’s Dearborn said that corporates’ “first line of questioning should always go to their treasury bank, because they have an established relationship. I am a firm believer that the banking system that we’ve had in place for 100 years is the banking system we’re going to have in place in one form or function probably for the next 100.”
Banks have sold services and products that have been tied to the payment rails – ACH, wire, check and card – but it’s been up to individual firms to manage their AP/AR departments, said BoA’s Garfield.
He noted that banks face a challenge and dilemma as they look at their respective client bases and examine which FinTechs may make suitable partners to bring AP/AR together. Partnerships may make strategic sense if banks find that they don’t have the features or functionality (or card offerings) that meet their clients’ needs. The challenge for the banks, according to Garfield, is: “Do you try to be all things to all people, or do you partner with multiple FinTechs to plug these gaps from a functionality perspective?”
Bloh said that FinTechs can be placed in two categories: those that are enabling banks and those that are inserting themselves into various payment streams. Garfield noted that FinTechs also have the opportunity to make inroads with corporates, as card management is not necessarily core to treasury measurement.
Chbib of Tradeling (focused on the Middle East) said marketplaces are helping corporates refine their daily activities. He told the panel that online platforms can facilitate match-making between buyers and suppliers, offering tech-driven tools to help them complete transactions more efficiently.
Yet challenges persist, and they are widespread among firms large and small. “When we look at the offline processes, 99.5 percent of B2B trade in the Middle East is offline,” he noted. “So we’re trying to augment this to the online medium. That’s the first step, and this already scares people away.”
Against that backdrop, Chbib maintained that corporate banking has never been customer-centric – but it’s moving in that direction.
“Everyone needs payment terms and needs to optimize cash cycles. I think 70 percent of SMEs in our region right now are at risk of just vanishing – literally in the next six months, they’ll all be out of cash,” Chbib maintained. “So we need to find solutions.”
Tradeling partners with providers that are focused on specific verticals. Chbib pointed to the food and beverage industry as an example, where smaller retailers may tap personal credit cards to help carry them through the pandemic, but can quickly tap card limits and find themselves unable to purchase more items, with negative ripple effects across supply chains. He said his firm can leverage artificial intelligence (AI) and advanced technologies to provide accurate credit scoring and to help provide payment terms and credit lines to improve cash flow.
As Conferma Pay’s Barker remarked to the panel about the drive for corporates to modernize and break down silos: “A small change in payment days could make the difference between life and death for businesses. So the motivation is definitely there.”
As you are spending more time working from home, you need to supplement your professional spend with company funds. You’ve also got regular payments on things like advertising and marketing costs, recurring spend that used to sit with a centralized corporate procurement team — but now it’s handled by all of us individually, on the ground.
Anyone working at home, at the office or on the road should be able to independently access or request payment for the jobs they need to get done. This technology is now available through the mobile devices we are so used to using in our daily lives.
Say you needed to pay for that sponsored LinkedIn campaign. Your marketing lead got a virtual card directly on their mobile device, in the exact amount. This card is only available during the next three days and cannot be used for anything else. Key data such as cost center, department code and employee ID are captured and automatically reconciled. At the same time, as our work lives reconfigure, businesses deserve the dynamism and real-time visibility of all procurement at all times.
While paper checks, ACH file generation and a number of corporate cards may have been easier to manage within a centralized procurement department, with so many of us working from home, the ability to monitor and approve spend becomes far more difficult. When so much is changing so fast, it’s essential to know that you have the master controls on as many moving pieces as possible. You want to be agile, and you want flexibility. You want to transform and evolve. The same goes for the systems that help you do what you do best in all aspect of your work life.
The world is forcing us to pay attention to lingering problems more urgently than ever before. Real change on issues of effectiveness, efficiency and access to cash flow are long overdue. Mobile payment won’t solve for the whole procurement payment stack — but it’s the best way to manage the business requirements of a worklife hybrid.
Watch on PYMTNS
About Conferma Pay
Conferma Pay is a global financial technology company. We design and integrate virtual payment systems that provides a more efficient, seamless and secure way to pay for for businesses.
Travel Meets Payment
Conferma Pay was born in Manchester in 2005. Since then we have connected over 700 TMCs, and directly integrate with all the major GDSs and OBTs. Our roots lie in corporate travel payment integration.
We enable our payment providers to flow virtual cards into the preferred purchasing process of any business travel buyer. Crucial to this is our network of banking partners, who have issued virtual cards in over 200 countries, in 40 currencies with over 45 commercial banking partners via all major card networks.
Our ecosystem continues to expand to meet the growing requirements of our global customer base.