Business Payments Digitization: The Right Rx for Your Balance Sheet
A three-part prescription for a healthier bottom line from PYMNTS.com
On an average day in the global business economy, your balance sheet gets a serious workout. When you factor in the massive financial gyrations from business disruption – pandemics, climate change, supply chain failures, unrest – it’s no wonder that balance sheets can start looking a bit…sickly.
In fact, according to a new report from Corcentric and PYMNTS.com, while the economy may be making a recovery from the pandemic, “corporate balance sheets are still reeling.” Last year was definitely a challenge, but there are many factors at work in why financial “healthcare” is experiencing issues, but our report, Business Payments Digitization: The Path to a Better Balance Sheet, surveyed CFOs at mid-market companies of $400 million – $2 billion in annual revenue to find out what role payments – specifically payments digitization – is playing in how out of balance their balance sheets are.
Payments Digitization: Long-term care for your balance sheet
Regardless of their own business models or competencies, company chief financial officers (CFOs), working with senior management and management teams, accelerate their planning and implementation of financial restructuring to get into better fiscal fitness right now, a big part of their strategies, in addition to business continuity, includes adopting a longer-term approach focused on sustainable, continuous benefits. Digitization is at the core of those efforts to get back into balance.
The following balance sheet “path to wellness” explores what initiatives companies of all sizes that participated in the PYMNTS survey are undertaking to improve, achieve, and maintain their financial health goals.
1. Symptom: Slow, cumbersome, risk-prone, and audit-complex manual, paper-based payments processes
While 53% of companies have greatly boosted their adoption of payments digitization since the last PYMNTS survey a few years ago, that still means more than half of organizations rely on handling supplier payments and purchasing the old-fashioned way, trapped in a legacy financial ecosystem of cash and checks. Seriously.
Prescription: Adopting a wider range of digital payment tools and strategies
It’s not news that businesses lag – often by a wide margin – consumer behaviors in embracing the advantages of digital technologies in payments and financial management in general. Think digital wallets, phone payments, payment apps, even online bill pay. Not only have these payments tools been available for a very long time, the benefits and security are proven.
According to the survey, over 85 percent of all CFOs say their organizations are now using digital channels to make and receive more payments than ever, including supplier portals, app-based payments, online methods, credit cards, and virtual card payments. Improved efficiency is the key driver, followed by better cash flow, enhanced cybersecurity, and overall balance sheet health.
2. Symptom: Unhappy suppliers who no longer prioritize your business, potentially disrupting your supply chains, operations, and competitiveness
Third-party relationships – suppliers and vendors – are the grease that keep your organization running smoothly. Or not running at all, depending on your relationship management. And make no mistake: payments are as much a part of supplier relationships as they are finance. Suppliers that constantly have to wait for payments, get paid late, or miss payments altogether, will not stay committed to your business. That’s dicey at any time but could prove lethal during business disruption: no direct or indirect purchases, no manufacturing, sales, or operations.
Prescription: Payments digitization that streamlines and accelerates accounts payable and exceeds supplier expectations
How many calls does your AP / Finance team field in an average week from disgruntled vendors who need to know where their payments are, or why there are errors in the payments they receive? Multiply that by the time your team then has to invest in tracking down and verifying payment details, account numbers, etc., etc. The cost to you and your suppliers is substantial, but the impact also goes beyond the financial.
By accelerating outbound flows, digitized payments should be considered as a supplier relationship management tool that serves to build trust and confidence and enhances communications. These are significant incentives to digitize your payment. During periods of disruption, those “soft benefits” can prove vital in maintaining your critical suppliers, and access to the goods and services your business needs. By recognizing payments digitization as a supply chain issue, CFOs can lean on that inherent strategic imperative to bolster stakeholder buy-in and funding for digitization efforts. According to the survey results, 60% of firms say that they have seen their supplier relationships improve after digitization. This is a situation that benefits the procurement team as well, resulting in better relationships when it comes to negotiations.
The PYMNTS / Corcentric report also notes that the Accounts Receivable side of the digital payments coin carries substantial weight as well. CFOs indicate the customer experience as essential. They cite attracting and retaining customers as key digitization drivers, along with giving those same customers access to more secure digital tools and process transparency, as top reasons to implement payments digitization. By equally serving both those financial assets and liabilities, payments digitization promotes the holistic health of your balance sheet.
3. Symptom: Constricted cash flow is choking off working capital and having a material effect on company health
When payments inflows and outflows become dislocated due to lack of process efficiency or a dependence on manual processing, the effect on your business is immediate and can be severe. Without insight into liquidity, not only is the impact on operations fairly instantaneous, but it can quickly result in a downward spiral of increasingly delayed payments and collections. That’s why 53% of the CFOs in this survey say working capital is critical to balance sheet health.
Prescription: Digitized payments that enable – and accelerate – real-time payments across a range of payment types
Our report with PYMNTS, Business Payments Digitization: A Path to a Better Balance Sheet, is crystal clear on the benefit of digitized payments on cash flow, with 84% of CFOs stating that “payments digitization has been instrumental in improving payments efficiency and working capital, both of which they see as integral to balance sheet health.”
If cash flow is the lifeblood of company well-being, then optimization of that cash flow through automation and digitization has to be a fiscal priority. By increasing payments efficiency, real improvements in working capital empower companies to streamline operations and stay nimble during disruption, or even seize opportunities to enhance competitiveness.
Diagnosis: Experts recommend a healthy dose of payments digitization.
The metrics tell the story. Of all the impressive stats in our CFO survey, perhaps none is more telling than the fact that 71 percent of businesses have fast-tracked digital transformation since the beginning of the pandemic. This wave of investment in digitized payments spans market sectors, industries, and company size, and in varying degrees has resulted in stronger, healthier balance sheets and more accurate forecasts due to stronger cash flows, improved working capital positions, streamlined AR and AP processes, and better customer and third-party relationships. So, your best financial “health insurance” is payments digitization.
The prognosis? By getting off your assets and digitizing payments operations, you will be on track to get that bottom line in better shape.
About the Report
Business Payments Digitization: A Path To A Better Balance Sheet is the results and analysis of a survey of 400+ CFOs at organizations generating between $400 million and $2 billion in annual revenue. The report explores how CFOs are leveraging payments digitization as a critical component for improving and maintaining operational efficiency, financial performance and balance sheet health, how digital payments impacts broader financial processes, and whether they have expanded their use of digital payments tools and strategies since the global pandemic began in March 2020 as well as service providers of those tools.