Will B2B payments ever be as simple — or as fast — as sending an email?
In a landscape where traditional B2B payments using ACH transactions take days to settle, and where the paper check and its in-transit delays are still unavoidable, buyers and suppliers are actively looking find a better, cheaper, more secure and above all, faster way to conduct their commercial transactions.
After all, the B2B landscape is responsible for around $125 trillion of annual money movement — and that transaction volume is not without its own fair share of headaches stemming from legacy bottlenecks and historic frictions that slow down payments and keep firms in the dark about their day-to-day working capital realities.
And as organizations strive to keep their best customers happy, while at the same time attracting new ones, a B2B payments paradigm shift is on the horizon with the emerging introduction of instant and real-time payment systems.
Real-time payments offer buyers the ability to pay on the same day that an invoice is tendered, allow suppliers to get cash in hand more quickly — and can even encourage buyers to negotiate on terms and receive a discount or benefit, creating positive ripple effects up and down supply chains.
Digital payments in general provide a more transparent line of sight into how money moves in the financial supply chain, reducing friction and improving overall efficiency. Digital payments that occur instantly have the compounding benefit of scaling up these value-adds.
That’s why, for the PYMNTS Series “Buy Side, Supply Side,” we are unpacking the crucial opportunities that faster, and increasingly instant, B2B payments can give firms on either side of the transaction.
Read more: Death by Paper Cut: The Hidden Costs of Checks
Instant payments empower buyers by providing them with greater control over their cash flow. Quick settlement reduces the need for large working capital reserves, allowing buyers to optimize their financial resources efficiently.
Faster payments inherently minimize the risk of late payments, fostering stronger relationships between buyers and suppliers. This reliability can lead to increased trust and collaboration, contributing to a healthier business ecosystem.
As Corcentric CEO Matt Clark told PYMNTS in June, in the past, B2B payments were “somewhat of a staring contest,” where whoever “has the biggest stick makes the other party conform to the way they want to do it — which is not sustainable and causes a lot of pain and migraines for organizations.”
Unlike traditional payment methods that involve batch processing and settlement delays, real-time payments allow funds to be transferred instantly, 24/7, and suppliers benefit significantly from instant payments as they gain faster access to funds.
“What receivers want now, and payers want, is predictability,” Sezzle CEO Charlie Youakim told PYMNTS in November. “If I’m expecting a payment on the 15th of the month, I’d like to be paid on the 15th.”
This quick injection of cash into their business can be crucial for managing operational costs, investing in growth initiatives, and improving overall financial health. Faster payments also contribute to a decrease in Days Sales Outstanding (DSO), enhancing the liquidity of suppliers. This reduction in payment cycles allows suppliers to better plan their cash flow and allocate resources more efficiently.
“The real-time payments opportunity is most prevalent in business and B2B transactions. If I get that money right away, I can start earning interest on it … immediacy has an impact for businesses and allows faster, even different, business models,” Shaunt Sarkissian, founder and CEO at AI-ID, told PYMNTS.
PYMNTS Intelligence finds that nearly 9 in 10 retailers (89%) that make commercial payments using real-time innovations say they have built stronger buyer-supplier relationships, and 76% of those that receive such payments say the same, according to “Corporate Changes in Payment Practices: The Retail Industry is Ramping Up Real-Time Payments,” a collaboration between PYMNTS and The Clearing House.
Read also: Is B2B Ready for a Real-Time Payments Overhaul?
For faster and real-time B2B payments to have a true, change-the-game impact, the uptake of faster payments and a pivot from checks needs to happen on both sides of the equation — between buyers and suppliers.
That’s because while eliminating the uncertainty of “when will I get paid” inherent to waiting for a physical check in the mail or refreshing an account to see whether one has been cashed yet is an incredibly attractive greenfield opportunity, there still needs to be the right infrastructure, interoperability and incentives put in place.
“A lot of instant payments is about moving toward this modern experience of being able to make a transaction and receive the money in real-time, as one does with everything else in their life. But the issue is first we need the infrastructure,” Sean Kiewiet, chief strategy officer and co-founder of Priority Technology Holdings, told PYMNTS in December.
“For B2B, I do think there are a number of interesting uses that will help with [instant payments’] speed to market,” Kiewiet added.
Companies accustomed to traditional net terms may face challenges in adapting to the new cash flow dynamics introduced by instant payments. Adjustments to financial planning and working capital strategies may be necessary.
At the same time, integrating real-time payment systems may require significant changes to existing financial systems and processes. Businesses need to carefully plan and execute the transition to avoid disruptions to day-to-day operations.
Additionally, instant payments are irrevocable transactions — and firms need to be aware of the risks inherent to speedier rails.
But the benefits of faster B2B payments can’t be ignored.
As PYMNTS Intelligence in the report “Tapping the Payments Opportunity in SMB Retail” found, 65% of small and medium-sized businesses (SMBs) are spending 14 hours per week on administrative tasks for payment collection.
Getting that time back can be huge for smaller businesses without the same resources as their larger peers.
“The big opportunity is for [B2B payments] to be seamless and just work,” Ernest Rolfson, CEO and founder of Finexio, told PYMNTS. “The usability component is critical and largely missing. These are things that take time, and this industry is very slow. It’s a generational change that is only just happening.”
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