Instant Payments Ease Money Flow Pain Points for SMBs

Pre-pandemic and pre-inflation, small- to medium-sized businesses (SMBs) were already grappling with managing cash flow.

As Aharon Levine, head of payments at Melio, noted in a recent interview, part of the difficulties lie in the time and effort spent managing accounts payable workflows and getting vendors paid.

“It’s hard to contemplate that a third of B2B payments are still done on paper checks,” he remarked to PYMNTS, and those checks equate to trillions of B2B spend annually.

Complicated Workflows

B2B payments themselves are anything but simple, said Levine, who noted that “there’s a lot that needs to happen before, during and after the payment.” The workflows on the sender’s side involve approvals, preparation, collaborations, monitoring where the payments are at any point of time and making sure that suppliers are getting the funds.

On the supplier side, after the paper check is received and deposited, there are all manner of taxation considerations, reconciliation and communications between accountants and bookkeepers.

“All of this can take 10 business days — or 30% of the month,” Levine noted, “and that’s a long time to wait for money.”

In the current environment, with inflation rampant, it’s critical that SMBs have greater visibility into fund flows and money movement. And the age-old push and pull between buyers and suppliers remains firmly in place: Buyers want to hang onto their funds longer, and suppliers desire to be paid as quickly as possible.

That’s no easy task where, as Levine said, B2B accounts payable and receivable preferences are not well-communicated between buyers and suppliers, where all stakeholders want to work with their own processes, and buyers struggle in paying their vendors in three, four or five different ways on different AR systems that aren’t aligned.

The Great Decoupling

The optimal way to solve that problem and move B2B payments forward is to “decouple” the process, allowing buyers to choose how they pay their vendors and enabling suppliers to decide how (and how quickly) they get paid.

Levine said Melio’s accounts payable solution bridges the gap between buyers and suppliers, allowing each party to move away from the paper check and other inconvenient payment methods.

The firm has fostered a unique capability digitizing small business payables and receivables through its partnership with TabaPay, a third-party money movement platform.

“You can choose how you get paid and control when you get paid — regardless of firms’ workflows, and this is the magic that we see in the market,” Levine said.

An SMB, he said, can choose to use its credit card to pay a supplier who only accepts paper checks. In the meantime, buyers unlock the rewards tied to their cards (such as cash back) without interfering with suppliers’ accounts receivable practices and business preferences.

Should that supplier not desire checks, there exist the pain points on the receivables side of waiting for the check and depositing. As a solution, Mastercard Send (and Mastercard rails via TabaPay) enables the supplier to convert paper checks and get paid instantly.

Speeding Toward Instant Payments 

Speeding up the payments flow between parties also has the positive ripple effect of improving supply chain dynamics (not to mention helping eliminate late fees and penalties) as back-office functions are automated too.

The platform model, he said, also can eliminate some of the misperceptions and worries about accepting or making instant payments by sending data through a PCI compliant environment secured by TabaPay.

With the platform in the middle, much of the risk tied to instant payments is mitigated. A vendor who, hypothetically, might have been reluctant to provide ACH details to trading partners and may have relied on checks because they felt that conduit was “safer,” may now find instant payments more palatable.

“We can send payments to you seamlessly within a few seconds — and that’s a huge value proposition to the suppliers that are in our business network and that provide Melio with their debit card information,” he said. “That solves a huge pain point for the supplier who is waiting for that cash.”