The last 18 months or so of pandemic-induced remoteness have forced businesses of all types and sizes to talk about business payments optimization — and specifically, ways they can get paid faster.
But for all the discussion and even some of the best intentions, it seems that more work needs to be done. Data from a PYMNTS study of 400 corporates in the U.S. and Canada done in collaboration with Mastercard found that 39% of middle-market companies — those with sales between $20 million and $1 billion — say it actually takes longer for them to get paid now than it did back in 2019.
“It tells us that [these] businesses are still stuck with some pretty archaic processes when it comes to making payments and getting paid, specifically suppliers, who report getting paid later now,” Mastercard Executive Vice President of New Payment Flows for North America Ron Shultz said about the findings in a discussion with PYMNTS’ Karen Webster.
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Paper Keeps Business Payments Stuck
Innovations in consumer payments have evolved more quickly because the purchase, payment and fulfillment of the goods and/or services in most cases happens at the same time. Digital wallets, card on file, contactless payments and connected devices capable of making payments, along with the near ubiquitous acceptance of those payment devices at the digital and physical point of sale (POS), have accelerated merchant interest in supporting the many ways consumers now want to pay.
Business payments are not so streamlined because the purchase, fulfillment and payment for goods and services are disconnected. The net terms economy is the cornerstone for how buyers and suppliers do business — with payment coming 30 days or longer once goods have been shipped and received or services provided. Many orders, invoices and payments flows are paper-based and largely manual processes, and they’re slow, particularly with respect to reconciling money received to invoices sent.
But it’s not for a lack of technology. Rather, what’s holding middle-market companies back is a general level of caution, given the size of the initial investments that must be made, Shultz told Webster.
As proof, he pointed to a key finding of the study, which highlighted concerns on the part of companies in investing in accounts payable (AP) and accounts receivable (AR) automation to be the cost of data management. Shultz said this specifically means transaction data, which is critical for every business, with many still using manual processes to reconcile payments with their invoices.
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Standardizing Business Payments
Shultz said that solving for middle-market company pain points was one of the key drivers of the development of Mastercard’s Track Business Payments Service (Track BPS). In addition to creating a directory of suppliers and their payments preferences, remittance data for each transaction travels with the payment, automating what was once a manual process.
Read more: Mastercard Rolls out Track Business Payment Service in US
“Essentially, Track BPS is a business-to-business network that brings consistency into the B2B payments marketplace,” Shultz explained. “It’s going to level the [business payments] playing field consistent with what we enjoy as consumers, where everything is so fast and efficient when we make purchases.”
Beyond reconciliation data, Shultz said Track BPS supports all business payments modalities, including real-time payments, checks and ACH in addition to cards. This helps to foster a more collaborative payments dynamic between trading partners in a safe and secure way, so the buyers know how and where to send their payments along with the right remittance data. The hope is that business payments will become more efficient and faster across the supply chain.
“One company’s payables is the next company’s receivables, and that supplier is someone else’s customer,” Shultz said. “The goal is to accelerate the cash flow cycle all the way through the supply chain. That’s the knock-on effect that I hope to see.”
The study also found that there’s good reason for optimism. A full two-thirds of middle-market businesses said they see the value in automating business payments. Shultz said he believes that more than anything, it’s a cry for help from many of those businesses and a journey that he said they don’t have to take alone
Shultz said now is the time for those businesses to embrace technology and turn to their trusted partners — the banks, the FinTechs, the card networks — to upgrade their manual, paper-based processes to digital, automated ones.
“I can’t believe that 39% of businesses are now waiting longer [than they did in 2019] to get paid,” he said. “We’ve got to reverse that trend, and two-thirds of companies say they are ready to do that.”
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