While there is noticeable progress with the methods and channels used to process and accept payments, there are concepts that have not been put to use in the business-to-business sector, even though they have already gained popularity in the business-to-consumer and consumer-to-consumer sectors. Is there something truly wrong with this segment of the industry, or is this simply not the right time?
Why B2B migration is so slow
According to a number of industry experts, payments and remittance consolidations seems to be the key issue. Change is slow (or non-existent) in this sector because of lack of operational efficiency. So, when it comes to the question of why the B2B sector is so far behind in transitioning from paper to electronic, there are a few distinct challenges and views.
One point of view is from the Federal Reserve Bank, which is conservative in its assessment of the situation. The main challenge is that there is still too much manual processing and paper handling that takes place in the B2B sector. There is a need to absorb the data and to understand which information is relevant from both tactical and strategic perspectives. Additionally, small businesses, in particular, are frustrated with the amount of data that they have to handle. Therefore, remittance data processing and integration seems to be the main barrier in converting from paper to electronic.
Another challenge is from the perspective of a sizable industry vendor. The vendor’s point of view is that payments and remittance consolidations seem to be the key issue. While operational efficiency is the name of the game, it is difficult to achieve efficiency with so much manual document processing taking place. One of the main reasons why companies decide to postpone shift from manual to electronic is the infrastructure cost. This cost is associated with migrating from one internal system to another and additional expenses associated with accepting consolidated payments. When a business enterprise is focused on other issues at hand, such as revenue generation and liquidity, payment processing is simply not on the radar. No change occurs when there is no real recognition that the system is broken.
With a myriad of B2B processes, the question is: What needs to be done in order to take the leap forward and to bring business payments to the 21st Century? If the common theme is simplicity, which tasks should be a priority?
The answer is that in order to simplifying the payment process one must get rid of paper. The driver of change needs to be efficiency which will have an immediate impact on the cost of running a business enterprise. Payment process simplification can be accomplished either with incentives, such as rebates, or with creating more favorable working capital conditions, such as extending Days Payment Outstanding. In reality, however, the incentives to move to the paper free world and to simplify the payment process are not in place. There is no motivation for partners, vendors, and suppliers to be on the same page because the value proposition is lacking.
What really matters to B2B
In the B2B world, fitting a new process into the existing business model is more important than real-time payments. Predictability of payments and stable flow of funds is essential for the business’ survival. Card payments are an adequate alternative to checks with the only issue being delay of funds. Paper checks will not go away until another form of payment takes their place in a ubiquitous way.
Apathy and status quo are powerful forces. In order for the standardized system to become a reality, a number of things must take place. In order for the innovations to take place outside of the closed user groups, a monumental event has to take place:
- First, vendors, partners, and corporations must work together in order to create an industry standard.
- Second, there has to be an appropriate incentive in place—either a rebate to be applied to the cost of payment integration process or increased DPOs.
- Third, innovative ideas need to be tested and implemented in the real world.
If these actions take place, it is reasonable to predict that paper-based payment processes will become a thing of the past in the next decade. If not, we might still be talking about eliminating checks in the 22nd century.Zoya Lieberman, CTP, is Director of Commercial Products & Services at Informa Research Services, Inc.