ACH Offers Middle Ground For Buyers, Suppliers

When Sourcery launched, CEO Na’ama Moran said there was a bit of a chicken-and-egg issue: She wanted the company to become a holistic B2B payments player, but should it begin with accounts receivable or accounts payable?

The firm chose the latter, offering its clients — companies in the hospitality and food services sectors — the ability to pay their suppliers by supporting invoice management and payment processing. But like the chicken and egg, AP and AR are connected: You can’t have one without the other.

Earlier this month, the company stepped into the world of accounts receivable officially, introducing a way for vendors to manage the payments they receive and the invoices they send out. Now, as a two-sided B2B payments company, Sourcery must meet the demands of both its corporate buyer and supplier customer base.

As Moran explained in a recent interview with PYMNTS, those two sides aren’t always in agreement when it comes to B2B payment practices. She divulged what vendors need from a payments and invoicing solution and the challenge of meeting those needs without neglecting the corporate buyer’s, too.

Vendors, Moran said, were never a customer of Sourcery’s. But they were a passive part of the company — ultimately, the end customer of Sourcery corporate buyer users. It was an “obvious path,” the CEO said, for the company to begin serving the supplier side of the transaction.

Among the many challenges of morphing into a two-sided company was acknowledging that, sometimes, buyers and suppliers have conflicting needs in B2B payments. Most obvious, and perhaps the biggest beast to tackle, is the fact that suppliers want to get paid as quickly as possible, but their buyers want just the opposite, to extend payment terms as long as possible.

According to Moran, one way to approach the conflict is by choosing a strategic payment rail: ACH.

That in itself, however, is a challenge.

“Paper checks are still the norm,” the CEO stated. “They kind of give buyers a certain type of feeling of comfort. They can control the payment, they can hold onto the checks for as long as possible and, in the last minute, they can send it. And then, it will take a few more days for that vendor to cash it out.”

Checks may support buyers’ desire for extended payment terms, but Moran called this strategy a “slippery slope” — and not just for suppliers.

“It makes it a lot harder to manage cash flow,” she explained. “You don’t know at what stage your payment is, when it’s going to actually get cashed.”

It’s why Moran considers ACH the best payment rail in B2B payments.

“With electronic payments, there is a lot more predictability in terms of cash flow management for the buyer and significantly less hassle,” she said. “You know exactly when your money goes out and when it comes out of your account. It’s a lot easier for you to understand how much money you have on hand.”

It will be a challenge for Sourcery and its vendors to convince companies to wean themselves off paper checks. But ACH is already a top rail for B2B payments: NACHA released figures earlier this year that found $41.6 trillion worth of B2B payments transferred over the ACH Network, a 4 percent increase from 2014.

Sure, there are other payment rails, like commercial cards, that can provide this kind of payment visibility to the corporate buyer. Proponents of this method argue that the cost suppliers take on to accept cards is simply a part of doing business and enables them to get paid faster and expand their potential customer base by accepting the payment method buyers prefer.

But Moran argued that the nearly 3 percent interchange fee linked to accepting corporate cards isn’t a reality suppliers accept lightly.

“In a low-margin industry, this [interchange fee] is very painful for vendors,” she said. “Ultimately, what happens is that vendors that accept credit cards move that cost onto their customers. Oftentimes, it is not revealed that buyers end up paying the fees.”

It’s strategic decisions like this, deciding which payment rail on which to base a B2B payments solution, that highlight the struggle of meeting both suppliers’ and buyers’ preferences. ACH, Moran said, falls snugly in the middle of meeting buyers’ need for cash visibility, while suppliers benefit from its speed and both sides are saved from a potential added cost burden.

Part of Sourcery’s strategy in the launch of its accounts receivable capabilities is to not only support ACH payments but to help suppliers transfer their customers onto the rail. But ACH isn’t always the top preference among corporate buyers, so the company will have to continually assess the best way to approach the tug-and-pull of buyers and suppliers.

Moran revealed that Sourcery is looking for additional ways to handle the issue. The firm, she said, is in “advanced stages” of working out a deal with “one of the largest financing providers,” a venture that would enable Sourcery vendor clients to access financing while they wait for invoices to settle. The CEO said it’s “another way to extend payment terms on the buyer side and get paid faster on the vendor side.”

The company is also looking into integrating technologies that can support features like dynamic discounting, again, supporting suppliers’ need to get paid faster, while incentivizing corporate buyers by offering a discount on their purchases.

It’s all a part of Sourcery’s efforts to evolve from an AP company to a holistic B2B payments platform, Moran said.

“There’s going to be a lot of opportunity to turn Sourcery into a financial management platform, to try to bring both parties together in terms of payment terms,” she stated.

It’s easier said than done, so it will be interesting to see what Sourcery’s next move is to cater to its newest customer base, while ensuring its existing community of buyers remains loyal.