The competition is heating up between payment technologies in accounts payable, with ACH and virtual cards seeing significant pushes in the B2B payments space to combat the dreaded paper check.
Which will come out on top? That may be the wrong question to ask, considering the multitude of preferences and needs both buyers and suppliers have when sending and receiving corporate payments.
Paper checks are familiar, especially to smaller businesses, and can support a longer cash float. Commercial and virtual cards, meanwhile, support faster payments to vendors while enabling payers to retain their capital for longer, too, as well as the opportunity for rebates and rewards. ACH is quickly gaining traction in the space as well with faster payment options and enhancements the boost the movement of data along with the movement of funds.
For many businesses, which payment tool is best depends on many factors, from what their vendors prefer to payers’ own cash positions.
Such illustrates the importance of accounts payable being “payment agnostic,” according to Richard Jackman, president and CEO of B2B payments technology firm FINTAINIUM.
“There are a lot of treasury management issues out there that need to be addressed,” he told PYMNTS in a recent interview. “The short-term view is to eliminate paper processes in B2B payments, and to give a client the ability to choose how they want to pay a particular bill — and when they want to pay it.”
There has been a surge in B2B payments technologies in recent years in an effort to pull businesses, especially smaller firms, off of paper. But according to Jackman, many service providers in the space are zeroed-in on collecting that interchange fee, resulting in reliance on and loyalty to certain rails or service providers.
Nixing Paper Just The Beginning
There are a host of other challenges in the accounts payable space that Jackman noted have an influence on the payment tools businesses choose to adopt.
In addition to interchange fees associated with cards, there are the risk of fraud associated with both paper checks and ACH transactions. And among the biggest challenges he pointed to for both accounts payable and accounts receivable professionals is reconciliation and being able to understand what payments are matched to which purchase orders and invoices — a data hurdle often unaddressed by check and other traditional payment tools.
For smaller businesses, there’s also the issue of having the resources available to be able to embrace and adopt a new payment solution.
Offering companies a new, ACH-only or virtual-card-only service will not necessarily address these additional points of friction, said Jackman. And while they may get businesses off paper, it prevents B2B payments technologies from achieving the long-term view of this industry: working capital optimization.
Strategically choosing which payment technology to use when paying vendors supports healthier cash flow, but according to Jackman, the opportunities of accounts payable and B2B payments digitization can go further thanks to the broader accessibility of data that comes with payments digitization.
“The data exchange between the client and their vendor is critical,” he said, “because a payment method without data is worthless in the accounting department.”
Data is key to addressing those pain points like identifying instances of fraud or promoting automated reconciliation. But when it comes to cash flow management, data empowers corporate finance executives to not only understand their cash positions and which payment tool will be most efficient and strategic when paying any given invoice — data is also key to looking forward.
Jackman emphasized the opportunity in helping businesses anticipate their cash flow needs by using data analytics to forecast an upcoming slow season or cash flow crunch. Beyond matching payments with invoices and purchase orders, B2B payment solution providers need to make use of the data that results from the payments digitization they encourage.
That’s among FINTAINIUM’S goals as it continues to build out its Payments Hub following a $2.45 million Series A funding round announced earlier this month. Jackman said the firm is committed to remaining “payment agnostic” to offer companies choice and visibility into which payment solution will work best in any given scenario.
Also among its goals: Boosting awareness among smaller and mid-market firms about the importance of using a variety of payment tools in their accounts payable operations, something Jackman noted was one of the largest challenges in this space.
“When you get into the mid-tier and SMB space, they just are not aware of what’s out there, and because of a lack of awareness, checks work really well,” he said, pointing to Federal Reserve data that reveals the continued prominence, and even growth, of paper checks in B2B payments.
But, he continued, small- and mid-market firms make up the majority of B2B payments volume in the U.S., meaning there is a huge opportunity in digitization and optimization efforts.
“I see a real opportunity in the mid-to-small market, which needs a proper amount of education,” he said.