Moving beyond payments execution and into collaborative commerce
Bringing buyers and suppliers together in a new transactional ecosystem.
Alan Koenigsberg
SVP and Global Head of Treasury & Working Capital Solutions, Visa
Alan Koenigsberg
SVP and Global Head of Treasury & Working Capital Solutions, Visa
For too long, B2B payments have been characterized by distinct and fragmented approaches to accounts receivable (AR) and accounts payable (AP). Legacy systems, lack of data standards, and limited interoperability all generate challenges for buyers and suppliers.
These pain points include high costs, manual processes, lack of payment data, poor visibility into upcoming payments, errors and fraud, late payments, and cash flow challenges. These pain points are numerous, they are real, they are significant, and AP and AR professionals around the world must live with them every day. But there is a better way, and the industry can get there – if it collaborates.
Companies need healthy suppliers and customers, so they are increasingly evaluating different payment methods
Collaborative commerce is key
There are a variety of payment methods available today, and each come with unique benefits and challenges. For example, while a check may be viewed by some suppliers as simple and straightforward, checks offer no working capital benefit to the buyer, they rely on the sometimes unpredictable postal service, and the buyer does not know exactly when the funds will be debited from their account. Similarly, ACH, purchasing and virtual cards all come with their own set of considerations for both AP and AR departments. The question is not about finding the optimal payment method overall – but finding the optimal payment method given the context of the buyer and the supplier. And this can only be accomplished if the buyer and supplier communicate and work together.
Historically, B2B payment providers were more focused on buyers. Offerings focused on providing buyers with visibility into future payments, as well as control and flexibility surrounding the funding sources and payment types. More recently, the industry has shifted, investing more to address the AR needs of suppliers. While some solutions are starting to address payment needs more holistically, most still emphasize either buyers or suppliers.
The need for a more integrated and digital approach has been brought into sharp relief by the COVID-19 pandemic. Economic constraints and the persistent risk of recession are impacting not just individual companies, but also their suppliers and customers. Companies need healthy suppliers and customers, so they are increasingly evaluating different payment methods, and assessing which payment types best meet not just their needs, but also those of their trading partners. Financial institutions, as well as AP and AR providers, can help drive collaborative commerce by enabling buyers and suppliers to choose payment methods that best fit their needs.
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The first wave has seen buyers and suppliers implementing AP and AR solutions to streamline and automate their own internal processes
From local optimum to global optimum
This is enabling an evolution in how companies optimize their payments strategy. AP and AR professionals are moving away from selecting payment strategies that optimize solely for their company’s position (a local optimum). Instead, they are evaluating across their trading partners, and identifying potential outcomes that are more beneficial to their partners overall, and as a result also more beneficial to the company than would otherwise be possible (a global optimum). This move has come in two waves.
The first wave has seen buyers and suppliers implementing AP and AR solutions to streamline and automate their own internal processes, e.g. automate approvals, make payment initiation easier, streamline AR reconciliation. That has often involved moving away from manual payment methods like checks to more digitally advanced payment methodologies. Examples might include a business using Bottomline Technologies’ payment network to streamline its AP processes. It might involve a company moving to virtual card to push its payables out or earn rebate; or a company using a payment network to streamline receivables.
The second wave builds off the first and enables communication between buyers and suppliers to optimize across supply chains. Sometimes buyers may be able to pay earlier. Sometimes suppliers may be able to accept later payments. Sometimes buyers need credit to make a purchase. Sometimes there is a greater need for data to support the payment and enable reconciliation. Sometimes one payment type is preferred over another. This requires AP and AR suppliers to connect and enable data exchange. Importantly, it also allows for better outcomes for both buyers and suppliers than would be possible for either the buyer or supplier just optimizing for itself. It is the kind of capability that we see offered through Billtrust’s Business Payments Network, which is designed to streamline the delivery of electronic B2B payments to suppliers, or increasingly through the use of application programming interfaces (APIs) that connect buyers and suppliers, or through the latest AP platforms.
Looking positively forwards
Several traditional AP fintechs have expanded their capabilities to connect their APIs directly into their clients’ suppliers to streamline data exchange for reconciliation. We expect that this will expand with AP providers bringing more services to suppliers, and that AR providers will provide new connectivity to buyers.
This is more than just a move to advanced payment methodologies and digital technologies. By enabling buyers and suppliers to identify how they want to partner together to advance their common interests, we are now arriving at the emerging reality of collaborative commerce.
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Several traditional AP fintechs have expanded their capabilities to connect their APIs directly into their clients’ suppliers to streamline data exchange for reconciliation.
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