Electronic Payments May Also Be Digitized Payments…But Maybe Not

By Brent Kinman | May 12, 2022
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The most important part of any transaction, for both customer and supplier, is the financial settlement at the end, yet payments are the least automated and digitized of all the processes in the source-to-pay continuum. This is especially true for B2B transactions. That’s the point made in a recent Corcentric Conversations podcast, Digital Payments – The Best Thing Since Sliced Bread. In fact, in many cases, every step in the process has been digitized EXCEPT payments.

Some accounts payable and accounts receivable professionals may assume the fact that they send and receive business-to-business payments electronically via ACH or wire transfer means they have digitized their payments process. They haven’t. What they’ve done is electronically transfer funds; however, a digital B2B payment isn’t just the physical flow of funds – it’s also the flow of information, letting suppliers know where the payment is and what it is for. This data flow, if done properly, includes a mechanism where information can be machine readable, avoiding the need for manual keying, which is where many errors can, and often do, occur, creating, in effect, a contactless transaction.

To illustrate that electronic payments aren’t necessarily digitized payments, you need to look back to the original purpose of electronic payments. This practice was created in the 1960’s as a direct deposit tool for government workers. The width for the original remittance line for ACH was 80 characters, which was the width of an IBM punch card. That’s how old the practice is. We’ve come a long way, with advanced payment technology leading to numerous B2B payment solutions, payment platforms, payment methods, and payment options, including ACH and virtual card.

Why some industries are more mature than others when it comes to payments digitization

Some industries have been faster when it comes to digital payment adoption than others, specifically banks (and other financial institutions and financial services), insurance, and healthcare. The first two industries, finance and insurance, are natural adopters of any financial technology since that is right in their wheelhouse. For healthcare, the adoption was a matter of necessity since this industry suffered tremendously during the early days of COVID. Medical practices, clinics, and hospitals had to find ways to drive cash flow, while also eliminating inefficient processes and operations. Digitizing all of their financial operations followed, with a keen understanding of the value of digitizing their payments system. Businesses like manufacturing and retail still have a good deal of catching up to do, but movement is occurring.

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Use of digital payments has increased by 71%; here are 3 reasons why

There’s been a transformation revolution over the last couple of years, precipitated, no doubt, by the pandemic. Remote working has made many companies take a much closer look at their processes and how to transform them to offer both security and productivity. According to a study of CFOs conducted by PYMNTS and Corcentric, since COVID first emerged, there has been a 71 percent increase in the use of digital payments. (The 2021 survey included 400 CFOs of middle-market firms ranging from $400 million to $2 billion in annual revenues, from five sectors: manufacturing, finance, retail, transportation and healthcare.)

Yet even with that, the study shows 40 percent of companies are still using paper checks for B2B payments, even though they’ve implemented automation throughout their other transaction processes. COVID revealed the vulnerabilities and weaknesses of companies who continue to rely on paper and manual processes when they don’t have physical access to checks and check-related tools. With digitization, you remove potential obstacles to on-time and accurate payments by taking those payments out of the physical realm and placing them in the electronic realm.

There are three very important reasons why companies are transitioning to digital payments:

  1. Security – According to the study mentioned above, 90 percent of B2B payment fraud involves paper checks. In addition to fraud, there is little control over those checks once they leave your possession. Do they get lost? Is mail delayed? Do they fall into the wrong hands? Digital payments eliminate all of these issues. Also, with paper checks, AP has to wait to be notified by the bank that a check has cleared, giving them minimal (if any) insight into their free cash flow.
  2. Unlocking Cash Flow – In a competitive business environment, when the ability to oversee and manage working capital is increasingly important, being able to pay on the day you choose and having full transparency into those payments gives you real-time visibility into real-time payments. This, in turn, gives you insight into your cash flow and confidence in your available working capital. With digital payments, you know the minute that payment is settled.
  3. Building trust with suppliers – The bane for suppliers is late payments. When suppliers know exactly when their payment will be received, they are more likely willing to negotiate early payment discounts or rebates, especially if these suppliers are medium or small businesses. These businesses have little wiggle room when it comes to cash flow, so ensuring on-time guaranteed payments is a huge trust builder. And, with so many supply chain issues, building trust can make you a preferred customer when it comes to fulfilling orders.

Whether you want to realize the discounts and rebates associated with early payments or you want to extend terms out into the future, working with a fintech digital payments provider like Corcentric lets you do that. Our accelerated payments program lets us pay your suppliers earlier (on a schedule they prefer) while you pay Corcentric on a date that works best for you.

By the way, if you’re curious about the reference to “sliced bread” in the podcast’s title, find out more by listening here.

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