B2B payments shouldn’t be a zero-sum game

In game theory, “zero-sum” means the total gains and losses of all participants add up to zero, i.e., in order for one side to win, the other must lose.

Companies have learned just how vital their supplier relationships are to their businesses

B2B payments have historically felt like a zero-sum game, with buyers winning at the expense of their suppliers, for example:

• Buyers hold on to their cash for as long as possible to protect their working capital, putting pressure on suppliers’ cash flow.
• Buyers dictate payment methods or cling to paper checks, without consideration for suppliers’ needs or preferences.
• Buyers offload management of supplier payment details to save time and reduce risk—forcing their suppliers to juggle multiple self-service portals.

Given this dynamic, the winners and losers in B2B payments almost seem predetermined. Fortunately, new approaches to Accounts Payable (AP) and payment optimisation are creating mutual value for buyers and suppliers and strengthening these increasingly important relationships.

The pandemic brings the buyer-supplier relationship to the forefront

Over the past two years, companies have learned just how vital their supplier relationships are to the health, continuity and growth of their businesses. They have seen first-hand the impact that the COVID-19 pandemic has had on supply chains, and how diminished supplies and delayed shipments have made it difficult for them to conduct business.

One way for companies to strengthen their supplier relationships – and potentially become preferred customers at a time when the supply chain is stretched thin – is to pay suppliers quickly using their preferred payment method. Suppliers not only depend on cash flow to run their businesses, but also to produce more supplies, so faster payment can help alleviate supply bottlenecks.

Even when companies want to pay their suppliers quickly, the inefficiencies of manual AP and payment processes can get in their way. For example, AP departments that manually prepare cheques have to print them, chase down signatures and then stuff, seal and send them by mail — which by itself can add three or more days to the process, and it is only expected to get worse.

Moreover, manual, paper-based processes limit visibility for both buyers and suppliers, leading to more inquiries from suppliers to AP teams that are already stretched thin.

Creating mutual value through AP automation and payment optimisation

To address these issues, many businesses have begun automating their end-to-end AP process and using payment optimisation services that handle payment execution along with supplier enablement and support.

This might involve enrolling suppliers into ePayments and managing their payment details, disbursing payments and handling supplier inquiries and payment issues that may arise.

AP automation and payment optimisation services provide buyers’ AP teams with big benefits such as reduced administrative burden, cost savings and reduced fraud and risk. They also add value for suppliers’ AR teams in the form of expedited payments, streamlined workflows and reconciliation and improved user experience.

Here are six ways the right approach to AP automation and payment optimisation can benefit both buyers and suppliers:

• Faster payment promotes better cash flow. By speeding up the payment process through automated workflows and electronic payments, buyers can manage timely payments that balance their cash flow needs with suppliers. This also gives businesses the flexibility to capture more early payment discounts (a great win-win).
• Implement preferred payment methods. Rather than forcing suppliers to accept a specific payment method, offering different payment types, and working with suppliers to implement a method that works for them, can benefit both sides. For example, while virtual cards carry a cost to suppliers, they guarantee payment once processed, and are available within one day compared to two for ACH, and even longer for cheques. They are also one of the most secure payment methods according to the 2020 AFP Payments Control and Fraud Survey Report.
• Self-serve visibility. Many providers offer portals where suppliers can check the status of invoices and payments, without having to contact the buyer’s AP team. While this is a great start, suppliers find even more value from portals that provide a single, consolidated view across multiple customers, including the ability to update payment details; view and download remittance data; and view insights into KPIs such as DSO and Credits Outstanding.
• Quicker response times. AP departments juggle many tasks and may not be able to respond to suppliers quickly. Engaging a payment service provider provides a dedicated, in-house team available to answer supplier queries, or respond to issues, in a fast, timely manner.
• Fraud protection. AP automation providers employ the latest security features and business process controls to help prevent fraud, which is a growing problem impacting buyers and suppliers alike. According to that same 2020 AFP Payments Control and Fraud Survey Report, 81% of organisations had experienced actual or attempted financial fraud in 2019.
• Easy reconciliation. Suppliers receive an email with remittance details when payment is issued and can access and download that information from the portal as well, making reconciliation easy.

With today’s volatile supply chains, companies are looking for ways to get a leg up on the competition. Paying suppliers quickly and providing a better overall supplier experience can help transform the traditional zero-sum game between buyers and suppliers into a win-win proposition. Suppliers get improved cash flow, while buyers secure the consistent flow of goods needed to run and grow their businesses.

About the author

Mike Railey is vice president of payments for AP automation software firm MineralTree.

He was previously director of corporate development and strategy at EnerNOC and co-founder and CTO at IdeaTap. He also spent five years as a submarine officer in the US Navy.