Paper-heavy B2B payments are crying out for commercial cards
In terms of innovation, B2B payments are largely ignored. Despite the enormous potential for new revenue streams, cost savings, improved cash management and automated access to mission-critical data for corporate buyers and suppliers, nearly all the focus of fintech firms for the past 10 years has been on consumer payments.
With $120 trillion in B2B payments made each year, making even a tiny change in how businesses pay each other could unlock incredible value for buyers, suppliers and their financial institutions.
Many companies that have been using cards for travel and entertainment spend for years have recently begun using cards to pay their "line of business" suppliers. For AP departments, using cards has the unique benefit of creating a new revenue stream in the form of card rebates, which offset operating costs.
Another feature that differentiates card is that it can be used as a credit instrument, extending DPO and working capital. This occurs at no cost to buyers since suppliers pay the cost of card acceptance.
Cards also have significant advantages over traditional payment methods in terms of payment security. They eliminate the need for storing supplier’s bank account information, preventing ACH fraud.
Meanwhile, corporate buyers have begun building card acceptance into their procurement decisions and RFPs, giving suppliers an opportunity to offer card acceptance as a way to attract new business.
Accepting cards allows suppliers to reduce DSO, as many buyers are willing to pay earlier if they can use their cards. Additionally, suppliers customarily offer early-pay discounts of up to 2% for traditional payment methods that can be eliminated by migrating to card, making the effective cost of card acceptance lower than that of discounted ACH and check payments.
Finally, offering a card platform with Straight-Through Processing ("STP") can simplify card acceptance by eliminating the need for additional hardware, software and dedicated employees tasked with manually processing and reconciling inbound payments. STP automates the entire payment and reconciliation process through integration with ERP and accounting systems and eliminates the need to deal with PCI DSS compliance since card data is never stored by the supplier.
Commercial cards are quickly becoming established as a viable payment method alongside check and ACH that need to be incorporated into every company’s existing AP and AR processes.
The shift is underway, yet most suppliers are unprepared. Eleven percent of accounts receivable professionals currently accept cards for B2B transactions and it is projected that cards will represent 12.5% of all B2B payments by 2020, a migration of $1.8 trillion in transaction value.
Suppliers need to keep pace with this change and implement systems and technology to optimize card acceptance so that they realize the benefits that cards can deliver.