The intricacies of B2B payments are often hidden, emerging as a significant cost factor only after the payment process has begun. This scenario, commonly referred to as the “overarching tax of doing business,” primarily affects suppliers and small to medium-sized businesses (SMBs) according to Mary Kay Bowman, EVP of payments and financial services at BILL. These businesses frequently focus on visible costs, such as transaction fees and processing expenses, while overlooking the compounding costs associated with manual processes. The persistence of paper checks, though often seen as simple and universal, exacerbates these hidden costs due to the challenges they pose in automation and exception management.
Previously, discussions on B2B payment inefficiencies highlighted technological advancements as solutions to mitigate costs. Proposals revolved around modernizing payment infrastructures and expediting digital adoption. However, recent insights reveal that while such advancements can reduce costs, they might not comprehensively address the underlying inefficiencies posed by disjointed workflows, which continue to thrive despite technological adoption.
How Do Buyers and Suppliers View Transactions Differently?
The core friction in B2B payment processes stems from a fundamental difference in perspective between buyers and suppliers. For buyers, the payment process concludes once the funds are transferred. Suppliers, however, do not consider it complete until payments are matched with invoices and recorded in financial books. This disconnect can render seemingly cost-effective payment methods more expensive due to the added manual reconciliation required. Bowman notes that payment methods with low direct fees could incur higher overall costs from exception handling.
Could Enterprise Complexity Aggravate Costly Payment Frictions?
In large enterprises, complex operations further intensify the issues related to payment frictions, as explained by Scott Hess, director of treasury at Cintas. Operating across multiple geographies and handling numerous clients and vendors complicates payment processes. While achieving a balance between customer experience and operational efficiency is vital, it can lead to inefficient workflows. Hess highlights that this extensive ecosystem introduces trade-offs where processes efficient for enterprises might introduce friction for other stakeholders.
Small to medium-sized businesses (SMBs) face unique challenges in gaining payment visibility. Unlike larger enterprises with robust treasury infrastructures, SMBs need comprehensive insights into when funds move, whether suppliers have received them, and if transactions have been accurately reconciled. Bowman emphasizes the operational burden manual exceptions impose across various transactions and channels, ultimately leading to significant hidden costs.
Embedded payments offer a potential solution by relocating payments from a final step to an integrated finance workflow. Bowman describes it as one of the most significant shifts, transforming payment processes into orchestrated, seamless activities. This integration aids in connecting remittance information directly with payment execution, automating processes that previously required manual effort.
As digital transformation in payments continues, businesses must recognize that technology alone may not resolve all payment workflow challenges. While reducing visible costs, businesses must also attend to less apparent expenditures associated with manual reconciliation and exceptions. Adopting embedded payment solutions and enhancing connectivity among various financial touchpoints could prove to be crucial in addressing these inefficiencies.
