More efficient payments today; more efficient supply chains tomorrow
By Sven Hinrichsen
The pandemic accelerated the digitization of B2B payments. Companies are seeing new cost and process efficiencies from their digitization efforts, especially with T&E cards and vendor payments. But what’s most exciting are the new possibilities for more efficient supply chains that open up when you have digital, connected, intelligent B2B payment ecosystems.
A lot of non-invoiced spending happens on T&E cards, also known as multicards. Use of these cards plummeted as travel bans kicked in. Multi-card spend is back now, but what’s changed for good is that companies are looking for tighter controls.
Prior to remote and hybrid work, people talked more about budgets and spending controls face to face. There was more awareness of company policies, and of oversight. That dialog, and that awareness doesn’t happen as much any more, so companies want their policy controls programmed right into the card.
They want to use cards to empower remote employees to get what they need to do their jobs, with as little friction as possible. But they also want to make sure that cards they’re issuing are used only for spending within the guidelines that the company set forth. That is entirely doable with today’s card technology platforms.
Spending limits, geographical restrictions and MCC (Merchant Category Code) designations are just some of the controls that can be implemented. Getting people to comply with T&E spending policies has always been a challenge. Automating policy controls keeps compliance front and center while speeding up purchasing.
In vendor payments, the predominance of paper checks, which had been inching down over the past decade, is now eroding at a faster pace. When the pandemic hit, companies that had centralized accounts payable teams working out of one office were all of a sudden faced with creating a decentralized organizational structure. Instead of figuring out how to create a new check process or how to stand up electronic payments programs, many just decided to outsource the process to a payments automation fintech instead.
That led to a big shift toward making more payments by ACH and virtual cards. As the number and size of ACH payments grows, one downside is an increase in ACH fraud. Outsourced payment companies have rigorous fraud protection processes in place--typically quite a bit more rigorous than an individual company can have, because they’re doing it at scale. That takes a tremendous burden off of accounts payable departments.
Using virtual cards in an outsourced environment has even more benefits. Payment is nearly instantaneous, and fraud protection is part of the package. All cards are programmed for single swipe for an exact invoiced amount. You get to hang on to your working capital for longer. And, customers get a rebate on their spending.
The biggest hurdle to businesses shifting to these digital payment types has always been enablement. Historically it’s been up to each individual business to approach their vendors and see who will take an ACH or card and then get them all set up.
To get to a high percentage of digital payments and a meaningful rebate, you had to have the rigor to go after every single vendor. And you had to keep doing it--according to internal Corpay data, vendor churn is 20-25% annually. That’s a huge investment in labor that isn’t going to pay for itself for a very long time.
Outsourced payment automators handle all of that for you. The idea of putting as much spend on cards as you can to max out your rebates is very simple. A lot of us do that as consumers, and it’s easy because the card acceptance network for consumer purchases is now almost universal. But if you tried to do that with business spending, that network wasn’t there.
Payment automation fintechs have spent the last decade building large B2B networks (close to 1 million vendors in the case of Corpay) of vendors enabled for ACH and card payments that customers can plug right into. They immediately get the benefit of that network, which increases the number of vendors they can pay electronically, and maximizes card spend and rebates from day one.
When you have these large B2B vendor networks with payments and data flowing through them, it opens up some exciting new options for something the world has long needed: faster, more flexible, more accessible supply chain financing.
This has always been a big lift in a paper-based world. You have to negotiate terms with the vendor, and then you need to get the money to them on time. Well, when you have a very big vendor network, it becomes possible for vendors to display their discount and financing offers right there in the network’s portal. Buyers can select the terms they want and send payment instantaneously via virtual single swipe card, or schedule it to send just in time to meet the terms of the agreement.
Invoice financing also becomes much faster and easier. If you know when an invoice is approved to pay, which the payment automator does, that lowers the risk substantially. Once an invoice has been approved and scheduled for payment to the vendor, there’s practically no risk for the payment automator to make a loan offer to that vendor. All the vendor has to do is opt in to it. You don’t have the visibility to do that when everything is happening offline.
All of this can be extremely flexible. Neither party has to commit to a long term program. They can opt in for a month or a week or just for one big invoice if they’re a little short of cash. As interest rates continue to rise, there'll be more and more demand for something like this because companies are going to have a harder time getting access to affordable financial solutions.
Payments are the lifeblood of supply chains. When money moves efficiently, it helps supply chains move more efficiently. The pandemic accomplished in a year what might have taken a decade of sales and marketing effort to get companies to adopt digital payments. That’s a major evolution that reduces a big source of friction from the supply chain.
With more digital payments and data flowing through these huge cloud vendor networks, it sets the stage for the next evolution. Better supply chain financing solutions are an obvious need. As technology advances and we reach a tipping point where the majority of business payments are digital, it opens up all kinds of possibilities to build adjacent products and services we haven’t even imagined yet.
Sven Hinrichsen is SVP of Strategy for Corpay Payables, which enables businesses to spend less through smarter payment methods