Commentary | Viewpoint

Automating B2B Payments: The Next Frontier

Tags: Logistics I.T., Finance

Ed Glassman, Group Executive, Global Commercial Products, MasterCard Worldwide, 914-249-6766

When it comes to automation in B2B payments, we have a long way to go. Too often, payments are disconnected from the underlying commercial transaction, creating problems from proper initiation to reconciliation.

Automating B2B payments is challenging for many reasons. Selling a product or service and getting paid are often two different processes. Anyone who has run an accounts receivable function knows that collecting payments can be tough. Even when suppliers establish terms to motivate rapid payment, buyers often take 60 to 120 days to pay.

Additionally, disputes and bad debt often mean that companies must write off significant portions of their accounts receivables. These amounts vary by industry and supplier, but average write-offs range from 2.7 percent to 4 percent of receivables.

On the buyer's side, controls can be a big challenge, too. Creating payments automation that replaces paper processes is a step in the right direction, but replicating the flexibility of wet-ink signatures on paper documents is not so easy.

Despite the challenges, the rewards of automating payments make the effort worthwhile. For buyers, paper processes are expensive, error-prone, and time-consuming. Studies have attributed a cost of $55 to $110 to paper purchase orders, invoice management, and payments. Additionally, those paper processes lack any reporting in terms of total spending, categorization, aging reports, and deal-term realization. All of these are benefits that payments automation can provide.

Pick a Card

There are numerous ways to implement automated payments, but one of the simplest and most effective is commercial cards. A basic purchasing card (P-Card) program can simplify everyday purchasing for goods and services up to $2,500. Programs at this level facilitate everyday spending, provide transparency on reporting and controls, and offer a basis for improved supplier negotiation.

For larger, more sophisticated purchasing, virtual cards are especially strong. A virtual card is a single-use account number that processes against a master card account. The virtual card is created by an application that can be hosted by the bank or your card's network. The virtual card application provides safe, simple, smart ways for users to sign-in, request a card, and specify how it will be used, including specifics such as amount, timeframe, supplier name, and number of transactions. You can even set up basic workflow to establish a "four eyes" release principle — in which both the CEO and CFO must authorize transactions — without having a fully functioning ERP system for payments.

In addition to single-use accounts with workflow and controls, payment alerts can be applied, from simple text messages to indicate a payment is above a set threshold, to sophisticated alerts and/or blocking based on time of day, amount, and supplier.

These types of incremental controls are great for buyers, but suppliers appreciate them, too. For the supplier, single payment is made for a specific invoice. No more bundling at month end, and no more waiting for months to get paid. This type of payment automation links the commercial transaction with the payment, greatly simplifying and accelerating collections and reconciliation.

Introducing commercial cards — either as physical plastic or as virtual cards — enables automation, control, information and better decision-making. Taken together, it means buyers can do a better job managing their money, and suppliers can get paid sooner and more easily, enabling both parties to focus on growing their business.