COVID-19 Forcing B2B Digital Adoption

Covid-19 pandemic is a watershed moment for B2B payments. 

B2B supplier payments – invoiced, accounts payable transactions – have steadily migrated toward digital methods but checks still represent 30% of the total value and 29% of B2B transactions.

U.S. B2B Supplier Payment Mix – Excludes T&E, intracompany transfers, and investment/M&A transactions.

Enterprises have made more progress in digitizing payments than smaller businesses. Yet they are often frustrated when paying the ‘long tail’ of their non-strategic, typically smaller suppliers.

SMBs generate nearly two-thirds of B2B check payments. Reasons for check’s resilience include:

• Smaller companies may not be offered ACH origination as a default feature of their banking accounts.
• Many rely on online bill pay to make payments to their vendors. Ironically, many of those ‘electronic’ transactions result in paper checks. If the SMB buyer is paying an invoice from a company that is not a major biller via online banking bill pay then a check will be cut on the back end and mailed to the biller.

Anecdotally, we understand that 80% of the checks generated by online banking bill payments are payments to SMBs!

Short-term Impact

The sudden COVID-driven shift to remote work exposes how reliant businesses are on paper-based manual processes for invoicing and payment. Businesses experienced multiple impacts from this paper dependency:

• Suppliers with accounts receivable/billing departments reliant on USPS invoice delivery may not have had sufficient staff available to prepare invoices. Their outsourced print and mail provider or lockbox may have had disrupted service due to virus-driven staff reductions.
• Buyers similarly may not have had sufficient accounts payable staff on hand to receive and process incoming invoices. Not all invoices are directed to accounts payable departments so many may have stacked up, waiting for office managers, department heads, and line of staff buyers to return to work. 

Even those businesses that have digitized have struggled with a range of issues:

• Back office employees lack the capability to securely access the enterprise financial software they use to perform their primary duties.
• Many back offices with on-premise software were unreachable to home-bound employees.
• Many mobile and tablet versions of corporate treasury solutions have disproportionately focused on management reporting and approvals (for positive pay, dual control of large value transactions) rather than day to day accounts payable and accounts receivable processing.
• Large enterprises often rely on business process outsourcing to handle large scale manual work. Their outsource vendors are likely to have experienced COVID-based staffing disruptions and there are likely to be ongoing challenges as the pandemic ebbs and flows across geographies. 

An April 2020 Association for Financial Professionals survey found that 65% of businesses have already started (39%) or are making plans (26%) to move check payments to electronic formats. AFP found that “Thirty-eight percent of organizations have implemented changes in their internal check issuance procedures and another fourteen percent are working on making similar changes. Many financial professionals have challenges with check printing processes, as well as the requirement of wet signatures for checks above a certain threshold.” 

Not surprisingly, the move to remote work has also intensified focus on process controls and fraud mitigation.

Payments Related Actions as a Result of the Covid-19 Pandemic

Cash Flow Concerns

The broader impact of the pandemic on the economy and resulting uncertainty creates intense cash flow pressure. Buyers are extending terms and paying later than usual. Suppliers must carefully consider (and reconsider) the financial health of buyer customers to avoid the risk of not being paid at all. Newer businesses that have only operated during the decade-long expansion are facing reduced sales and late payments for the first time – often without the experience, procedures, reporting, and cash management tools necessary to manage through the crisis.

U.S. Businesses are Paying Later 

Uncertainty underscores business reliance on reliable, timely transaction information to project cash flow, predict creditworthiness, and manage collections. Manual processes introduce keying errors and are inherently inefficient. As a result, businesses suffer doubly – as a result of disruption of manual processes and as a result of impaired decision making due to incomplete or delayed data.

Longer-Term Impact

The pandemic has brought C-suite attention to back-office “business continuity” challenges. For years accounts payable and accounts receivable teams have struggled to garner IT attention and obtain funding for process improvement and the implementation of new financial solutions. As a result of the COVID-19 crisis, digitization will finally occur. 

The acceleration of financial digitization efforts will impact not only businesses as buyers and suppliers, but also their banks, enterprise solution providers, and the enablers each relies on.

Implications

Machine Learning/AI Impact

The increase in digital transactions will boost the utility of artificial intelligence (AI) and machine learning (ML). Benefits of this technology include:

• More sophisticated translation of data from one format to another
• Better matching of invoices to purchase orders and matching of remittance information to associated payments
• More accurate application of incoming cash to open invoices in accounts payable
• Improved cash flow forecasting
• More effective risk management tools.

This will increase straight-through processing rates and better decision making to better manage through future business cycles. As smaller businesses adopt digital tools they, too, will have access to robust tools and efficiency.

B2B digital leaders are getting 10X growth in all the areas as per my analysis.

Conclusion:

B2B companies have the ability to take a more structured approach to digitization that can give them more control over their spending and greater assurance that resources and investments are being directed toward the highest-value opportunities. By focusing on the digital practices that data shows to be most tied to the customer and financial success, B2B players will be able to create and sustain significant long-term value.