Lagging Service Sector Subscription Models Lack Automated B2B Payments

It’s often said that the consumerization of B2B payments is one of the hottest trends in the FinTech industry today.

But, for all the noise being made by the hundreds of different invoicing platforms and payment providers in the space, the fact remains that the trend is proceeding at almost glacial speed for many companies, where most transactions remain rooted in paper-based invoices and payments are still being sent in the mail through a physical check.

However, that doesn’t have to be the case. In the software-as-a-service (SaaS) realm, companies have their payment processes nailed down to a tee with automated and recurring billing that helps keep the chance of error or fraud to a minimum.

The problem is that what works for those companies doesn’t play well in the world of B2B service providers, where invoices and billing are done on an irregular basis and transaction amounts are in a constant state of flux.

“Recurring payments are great and they work really well for eCommerce,” said Anchor co-founder and chief executive Rom Lakritz. “But when you look at service providers, the only real constant in recurring payments is change. So, it’s not really recurring at all.”

Further reading: 25% of AP Professionals Say Duplicate Invoices and Payments Are Major Pain Points

All too often in B2B scenarios, the terms of payments change. Companies rarely bill a provider for the same amount, even if they do business with it all the time.

One month, the company might order more, or less, of the same supplies, and so the invoice changes — or it might need to add additional expenses to an invoice some months, so recurring payments simply don’t work. Or, at least they didn’t until Anchor arrived on the scene.

The company, which is primarily targeting small- to medium-sized businesses (SMBs) in the service provider space in the U.S., is looking to expand after raising $15 million in a seed funding round earlier this month, and it has hit on a very novel idea.

Anchor aims to take all the basics of recurring payments in eCommerce that work, such as preventing late settlements and reducing errors, and rebuild them in a way that service providers can work with.

See more: Israeli FinTech Startup Anchor Closes $15M Seed Round

Anchor takes the basic agreement between a service provider and a customer and hosts it on a private “micro site” that only they can see. The site serves as a place where every change in that agreement can be updated, allowing the two parties to manage billings, invoices, payments and reconciliation automatically on a single platform.

“Once the service provider and its customer come to an agreement on the basic terms, it becomes a living online agreement that both can see, where they can change things in the future,” Lakritz explained.

Through that agreement, service providers can solve problems around revenue leakage that occur when one or both parties forget to update an existing agreement.

Lakritz gave the example of a lawyer who’s working on a project for $15,000 a month and later decides he needs to be paid more because it involves more work than was initially thought. But, it’s often the case that the lawyer forgets to tell someone else to update the agreement, Lakritz said, as he needs to remember to do so along with a million other tasks he needs to do.

Anchor’s living agreements solve other problems too, including the risk of duplicate invoices and fraud. One of the main reasons B2B payments are fraught with errors is that there are so many people involved in the process. The person who makes the decision to purchase something is not the person who pays the bills — someone else does that, and it results in the potential for errors.

With Anchor, the decision maker is connected to the payment process and must sign off on it, eliminating the risk of fraud or duplicate invoices.

More like this: B2B Customers Now Expect a B2C-Like Seamless Purchasing Experience

“Once someone is working with a service provider on Anchor and the procurement staff signs that agreement on Anchor, nobody can make any changes,” Lakritz said. “So we have literally taken out the risk of fraud, both internal and external.”

Errors are also reduced because Anchor’s process ensures there are no duplicate invoices or duplicates of items on an invoice. Moreover, its software highlights all the items that need to be checked when a payment arrives.

Lakritz said that more than anything else, Anchor is really trying to build trust between two parties. If people can trust the invoices they receive from service providers in the same way they trust an invoice from a company such as Amazon or Netflix, then billings and payments will no longer be such a painful process.

With trust, payments will flow and then the true consumerization of B2B will occur, Lakritz said. He sees a world where everything will become as digitized and as automated as possible, and he believes it will happen within the next 10 or 15 years.

“Trust is the basis of everything. It’s the basis of a marriage, and it’s the basis of every relationship between a vendor and their clients,” Lakritz said. “I don’t see people signing agreements in 10 years that are not online, completely live and automated like everything else.”