AR Innovations Lag AP Advances For B2B Payments

There’s an imbalance in B2B payments — between buyers and suppliers, and between automation on one side of the cash flow equation and manual, paper-based processes on the other. Mark Aquilina, senior vice president of product and strategy at WEX, told PYMNTS that’s partly because digitization of accounts receivable (AR) lags behind that of accounts payable (AP) on the technological front.

However, figures show that a majority of executives are in the midst of digital transformations, where 83 percent of financial services executives surveyed say that they’ve innovated with payments technology this year.

Aquilina told PYMNTS that a lot of people in financial services are talking about bridging what he termed the AP to AR “chasm,” but “there are not enough people focusing on the lack of acceleration on the AR side to match the speed of acceleration on the AP side.”

Addressing The Chokepoints 

That mismatch of innovation creates B2B chokepoints, where digital invoices and payments are increasingly pushed to suppliers who don’t have the technology or automation in place to handle those technological advancements.

Aquilina said that’s partly because historically, B2B payments innovation efforts — especially via FinTechs — have focused on buyers.

Witness the rise of commercial card products and rebates over the past several decades, where Aquilina said “the focus really generated heat around the buyer and the cardholder that was absolutely not matched by banks on the supplier or merchant side.”

He said AP-focused FinTechs have sought to leverage the economics around commercial cards (especially digital ones) to create additional revenue streams even as they seek to get as many invoices under management as possible. Aquilina said virtual cards are poised to eclipse other commercial card form factors over the next few years.

Another factor — there hasn’t been a real diversity of economic models across open-loop networks, Aquilina said.

Suppliers have been pretty much forced to accept cards. The chokepoints are exacerbated with antiquated transaction pricing. Form factors (such as ACH and checks) create static economics.

And lastly, invoicing workflows are marred by manual processing. Of the estimated $250 billion in virtual card payments sent last year (as measured in domestic volume), 95 percent were invoiced via email. Aquilina said that’s a tremendous amount of volume, and suppliers have to stop everything to address what’s in those emails — double-checking the payment methods, the invoice numbers and other data associated with payments.

Fragmentation also creates pain points for suppliers. Some buyers use one AP automation product, while other buyers opt to use another that has different messaging formats and a general lack of integration with suppliers’ own choice of AR solutions.

But Aquilina said the economics and workflows can be improved with eInvoicing and eBilling solutions that take information straight from a buyers’ enterprise resource planning (ERP) system and forward it straight to the supplier’s ERP system. That straight-through flow goes a long way toward alleviating reconciliation processes and making sure payment terms are honored as they are negotiated between parties.

However, Aquilina said that so far, “there’s just not enough proliferation of those technologies and connection points in the industry to make them overwhelming. But that’s likely to change — and move toward a tipping point — as more FinTechs endeavor to become middleware integrators. Firms are also embracing platforms such as those offered by WEX, which has card-issuance and integrated-payables platforms that take in payment instructions and route payments.

Change Is In The Air 

Looking ahead, Aquilina said that we’re unlikely to return to the way B2B payments were done before the pandemic, as COVID-19 has trained a spotlight on B2B inefficiencies.

“Companies are learning how to be more efficient, do more with less, do more with technology,” he said. “I don’t see that going away post-pandemic. In 2021, we’re going to continue to see more of these automation trends.”