2020 has been such an unexpected year. Even if you had seen the pandemic coming, no one would have guessed in March 2020 that we would still be talking about it in 2021, or understood how much it would change just about everything. With this mindset, it almost seems ironic to make predictions. Nonetheless, some clear trends in B2B payments have emerged and are expected to emerge over the next 12 months. Here are some of the trends that are taking the wheel of payment automation this year.
Payments by checks lose their luster
The business case for payment automation has largely focused on cost savings and PA efficiency. Coronavirus disease (COVID-19) and remote working have reinforced this business case – for security reasons, many companies are still reluctant to send employees to the office to cut checks. But their suppliers don’t want to receive checks and they ask buyers to start making payments through ACH. With providers embracing digital payments at a greater pace, it seems we’ve reached the tipping point where checks are becoming obsolete on a larger scale.
ACH pain hits home
As organizations pay more vendors through ACH credit, they realize the true cost of ACH payments and the risks around them. At 25-50 cents per transaction, ACH looks cheap, but when you consider the time, expense, and provider activation responsibility, the actual cost is between $ 1.40 and $ 3.79, similar to what it costs to process a check. And that does not include the cost of fraud prevention. ACH payment fraud is on the rise, particularly in Vendor Email Compromise (VEC) programs, where crooks pose as vendors and convince AP teams to send ACHs to fraudulent bank accounts.
Most businesses have mature controls around the check process, and banks offer checks through positive pay and a positive payee. However, these controls don’t always exist for ACH, and banks often struggle to offer fraud protection for this type of payment simply because check fraud has been the primary focus for so long. Today ACH fraud is on the rise and the risk is greater than with checks because the ACH payment process is much faster. It is almost impossible to recover stolen funds if you don’t recognize the problem before the funds reach the wrong actors. All of these challenges are likely to push more organizations to outsource their payment process to alleviate their overworked teams.
Ripple effects of digital transformation
We’ll likely see companies sort through some ripple effects in 2021. Organizations needed to move forward urgently, and there was no time to plan for some of the changes that would normally take time to put in place. implemented.
There may also be impacts on external stakeholders. Look for the similar ripple effects of rapid and tactical digitization across all departments and industries. This will lead to a more strategic second wave of transformation and automation with solution providers responding to emerging needs.
Electronic data speeds up AR processes
One of the hidden reasons checks have maintained their popularity for so long that they are easy to reconcile for AR. Funds and data appear simultaneously, with remittance data directly on the check stub. From there, AR knows exactly how to apply the funds to their invoices. If they have safe deposit box service with their bank, they don’t even have to enter the check details.
Until recently, this simplicity did not translate into ACH payments. AP staff would see ACH deposits on their account, but they wouldn’t necessarily be told how to apply them as the data didn’t travel with the payment. The National Automated Clearing House Association and the Real-Time Payments Network have improved the transfer of ACH remittance data. Although the number of fields and characters is limited, this is a big step in the right direction.
Digitization unlocks supply chain finance
When it comes to supply chain finance, the United States lags behind Europe, which has implemented e-invoicing for some time. There is a huge opportunity in the United States to create more fluidity and working capital for suppliers and buyers by using data to accomplish a faster, more dynamic type of underwriting.
Smarter systems with access to the entire data flow, from issuing purchase orders to payment transactions, can support pre-approved remittance and funding options. This wasn’t possible in a paper environment, but we’ll see more of these offerings as businesses digitize their data.
A transactional social network for businesses
It is becoming outdated to think of buyers and suppliers (as well as AP and AR) as separate and independent organizations. Each AP team has a corresponding AR team. All businesses are both buyers and suppliers. As you examine all the connections between them, you begin to see the huge social network of financial professionals behind the constant exchange of funds, purchase orders, invoices, contracts, and other documents. However, for all highly sensitive data, organizations are not equipped to manage it as securely as they should.
Some financial companies use the concept of B2B social networking to incorporate prototype versions of a “Facebook for Business” into their product. Still, we haven’t seen any with broader functionality or mass adoption yet.
Whether a set of tech companies share their vast network or a single company creates and markets the right solution, the market is ready for a new business standard. Someone is going to create a platform that will take businesses out of the virtual dark ages and into a renaissance, and it will be a big hit when they do.