In B2B, the “match game” is the part of the payments process that no one loves, yet the game is played by all: Matching, of course, the invoices and the PDFs, the paper checks to the payments … which ultimately, slowly, winds up as cash in the corporate coffers.
Chris Ward, EVP and head of digital and innovation for treasury management at PNC, told Karen Webster that killing some of the “sacred cows” of B2B can, ultimately, lead to a better payments experience. One key cow that needs to be slaughtered, per Ward: keeping payments and related data separate.
Global financial institutions (FIs) need to “reimagine” business payments in order for corporate treasurers and CFOs to take full advantage of the opportunities now present across a digital, connected economy and can lead to healthier balance sheets for both suppliers and buyers.
As Ward noted, there’s been a push and pull between corporates and banks to transform back-end functions, and business payments.
That transformation (with real-time payments in the mix), targets the three “I’s” of the economy at large — no matter if businesses are consumer facing or transact solely with other enterprises. There’s the desire for immediate settlement, there is interconnectedness, said Ward (critical for supply chains) …
… and then there are the interruptions.
Grappling with Interruptions
Ward noted that interruptions were a key characteristic of the pandemic to be sure, but have more recently bedeviled supply chain interactions.
And as a result, he said, “businesses are pushing for that more immediate integrated experience with their customers. Banks are working with their [corporate] customers to help them rely less on checks and on cash.”
The urgency is there to continue to great digital pivot, and to speed it up. Ward noted that in many cases, payments executives are returning to their respective offices to find “four mail trays’ worth of returned checks that they mailed out.” The response is immediate: These executives are going to have to do something to improve cash collection and payment cycles. During the pandemic, though, as companies across all verticals have modernized everything from disbursement to bill payments, the groundwork has been laid to help B2B embrace automation of accounts receivable and payables-related activity.
“If you think about a business’s financial supply chain,” said Ward, “they really are driving toward ‘how can I automate the invoices coming in? How can I automate the payments going out? How can I automate the payments I’m receiving from a receivables perspective?”
And the overarching theme is that all businesses, too, are striving for a better client experience across the supply chain. As Ward said, only a bit tongue in cheek, about “experiences” in B2B: “I often think these are words we we’ve never really used in the business payments parlance before.”
Drilling into the buyer/supplier relationship, suppliers want their buyers to pay more quickly, which in turn improves collections, and ultimately, the balance sheet.
The best ways to kill the sacred cows of B2B — beyond moving away from checks and cash, beyond the invoices — lie with including more information with the payments themselves. As Ward told PYMNTS, with the paper chase so ingrained with B2B payments, all too often there’s no way to quickly (and accurately) apply payments to their respective transactions.
“If you receive money but you cannot apply it to the receivables, that money is worthless,” said Ward. The checks and remittance details are limited fonts of information. Firms must embrace faster electronic payments to alleviate those knowledge gaps and gain real time visibility into flows. Against that backdrop, he said, PNC’s corporate customers are embracing APIs as a way to “talk to banks” and gain information and insight dynamically — including immediate confirmations that transactions were done.
And, he added, enterprise clients are upgrading ERP systems so they can facilitate real time experience with suppliers and with banks. Wrapping a broad range of information into the payments benefits the entire ecosystem, said Ward. That’s especially true with trade credit, where letters of credit are giving way to “open account” supply chain financing. “It’s just a different way of doing supply chain financing in anticipation of invoices being paid,” he said.
Looking ahead, he said an idealized business payment would involve the ability to make electronic payments without having to exchange banking information. We may get there, sooner rather than later, as 40% of B2B payments may be conducted in this way, said Ward, by 2025.
“If I could wave my magic wand and get everybody to be able to conduct alias oriented payments, do it in a way that it, that you have extreme confidence that the transaction went all the way through, and the dollars and data are moving together, that would be my answer to the riddle,” he said.