Payments Acceleration Shifts The Risks For Buyers And Suppliers

The buyer-supplier relationship goes beyond regulatory requirements like Know Your Customer. Business-to-business (B2B) trade, especially when deals occur across borders, expose businesses to all sorts of risks, like non-payment (on the supplier’s side), or non-deliver (on the buyer’s side).

Research from Atradius released in 2016 found that risks down the supply chain are 75 percent higher than they were pre-financial crisis. More recently, the Association for Financial Professionals’ (AFP) 2017 Risk Survey found nearly half of businesses say their exposure to uncertainty is higher than it was three years ago, and 51 percent say forecasting risks will be more difficult three years from now than it is today.

Amid the risk mitigation challenges faced by internationally trading businesses, B2B payments are accelerating, which has also shifted risk exposures. Technology is moving to enhance payments security, but there is now a smaller window of time for fraud and other risks to be identified before a transaction settles.

These are the types of issues eProcurement platform Mercateo has to address as it shifts its strategy from a merchant to an agency model. The company recently announced a partnership with Wirecard, which will now handle transactions on the platform that connects buyers and suppliers.

Dr. Sebastian Wieser, Mercateo founder and member of the management board, recently explained to PYMNTS that this means Wirecard, as a bank, will facilitate B2B payments and enable the platform to shift away from its previous model, in which it temporarily took ownership of a supplier’s product to then sell to a supplier’s customer.

“Collecting the money isn’t allowed if you’re in an agency model,” he said, adding that the Wirecard collaboration brings business partners a step closer, further streamlining the B2B transacting process. This reduces risk, as a regulated bank is handling money.

“The agency is not allowed to take the money without having this more regulated kind of control, by law, so it doesn’t run away with the money,” said Dr. Wieser. “The supplier would be at risk [of non-payment].”

It’s one of several areas in the global B2B trade ecosystem that Dr. Weiser said can lead to risk exposure. Mercateo, as a third party, absorbs some of that risk.

“The risk for us is if the customer is not happy with the product and wants to return it, but if the supplier has gone bankrupt, we have to accept the return and give the money back,” he explained.

Payment Shifts

Payments are, of course, a huge part of the risk management strategy. According to Payoneer research released last year, 75 percent of small businesses said they turned down an international business deal because of the risk of non-payment. Most suppliers (57 percent) also said their current strategy to mitigate non-payment risk limits their ability to grow across borders.

In Europe, and especially thanks to SEPA (Single Euro Payments Area), Dr. Wieser said bank cards are far more rare than bank transfers when it comes to B2B transactions, domestic or across borders.

“In Europe, cards exist, but I would say over 90 percent of invoices are paid by bank transfer,” he said. “This is typically very cheap — very, very cheap. There are transaction fees with procurement cards, so this is only relevant for mobile or offline payments, but for ERP-to-ERP connected transactions, typically bank transfers are only a few cents.”

Before SEPA, the various payment schemes in each European Union member state made cross-border payments much more difficult, and much slower. Dr. Wieser said SEPA has not only streamlined B2B transactions across the continent, but has also made them faster, which has actually benefited supply chains and corporates’ cash management strategies.

That’s despite a common concern, as faster payment schemes roll out across the globe, that accelerated transactions mean less time to identify fraud. In the U.S., NACHA told PYMNTS’ Karen Webster that a survey found 0 percent of financial institutions reported an increase in fraud due to Same Day ACH. What’s more, Dr. Wieser said, faster payments can actually help the risk mitigation effort.

“It makes liquidity and cash management much easier,” he explained. “Payments go faster, and it squeezes out assets from the supply chain, which is excellent.”

This is essential for managing risk: The AFP’s 2016 report found that 60 percent of corporate treasury and finance professionals said maintaining adequate liquidity was their number one strategy to reduce the impact of geopolitical risks, more so than any other strategy, including currency risk access and balance sheet maintenance.

Considering the ongoing gap in trade finance across the globe, maintaining adequate liquidity and understanding cash positions in real time is paramount to successful global deals.

According to Dr. Wieser, Europe’s payment strategy is moving in the right direction to continue facilitating B2B trade.

“It’s going the right way now,” he said. “We definitely see a big push in procurement and B2B digitalization. There is this digitalization of the whole supply chain, and core processes become more digital, so you have fewer indirect procurement processes and more transactions.”