Unlock cash in your balance sheet with payments digitization


The pandemic has changed business globally, in multiple ways: enabling a remote workforce; reassessing the supply chain; changing how inventory is calculated; and more. But undeniably, one of the major changes is the acceleration of automation and digitization of multiple business functions. A PYMNTS report, written in collaboration with Corcentric, tracks how this acceleration is changing the way CFOs view payments. What has usually been viewed as a business necessity is now seen as a way to increase working capital and unlock cash hiding in the organization’s balance sheet.

In the report, Business Payments Digitization: A Path to a Better Balance Sheet, 400 CFOs from middle-market firms (those generating between $400 million and $2 billion in annual revenue) were surveyed regarding their usage of digital B2B payments. CFOs are under greater pressure than ever to find effective ways to increase efficiencies and revenues in an increasingly competitive global economy…one that has been completely disrupted by the pandemic.

Debt pushes the push for digitization

After March 2020, businesses began to accumulate record debt. By the following March, nonfinancial companies in the U.S. found themselves $11.2 trillion in debt, leaving CFOs with the task of finding ways to restructure and pay down that debt. This has resulted in more long-term thinking, with CFOs looking at the implementation of digital innovations as a way to improve their organizations’ payments operations. The survey notes that 71 percent of the CFOs surveyed stated that they accelerated payments digitization after March 2020.

Listing enhanced efficiency and reduced costs as among the chief benefits they have experienced from these payments solutions, an improvement in working capital is actually the second-most common benefit they have realized. Although supplier portals, app-based payments and additional online methods have contributed to the increase in efficiency, it’s the switch to ACH and virtual cards (or p-cards) vs. checks that’s really made a difference. How important is this switch from checks to ACH and credit cards (v-cards and pre-paid cards)? According to an Accenture study, “nearly 420 billion transactions worth US$7 trillion may shift from cash to cards and digital payments by 2023 – and increase to US$48 trillion by 2030.”

CFOs understand that manual, paper-based payments are highly inefficient and leave open wide opportunities for fraud, theft, and errors. Although far too many companies still rely on the legacy payment methods of paper checks and cash, the PYMNTS report found that 53 percent of businesses that continue to use checks indicate that the amount of checks received has dropped once they fast-tracked digitization. For those businesses that use cash, the number is even higher – 87 percent.

How does digitization actually unlock cash?

The first thing to understand is that digitization of payments is a boon to both sides of a transaction, enabling process optimization for both accounts payable (AP) and accounts receivable (AR), as well as for other stakeholders. These process improvements and efficiencies are important, but how does digitization and electronic payments actually translate into greater control over cash flow and better management of working capital?

Elimination of paper – Companies that still rely on legacy payment systems of manual processing and paper checks often consider the expense as simply the cost, in time and money, of doing business. Those costs include payment processing, cutting the check, mailing, and postage. A 2018 PYMNTS report estimated these costs can range from $4 to $20 per check (most other estimates hover around the $3 to $10 range). Digital payments like ACH and V-cards not only are a small fraction of that cost, they also significantly reduce (if not eliminate) the amount of time spent by personnel.

Increase in on-time payments

But the savings go well beyond the point above. The time saved through digital payments will ensure on-time payments and that can result in discount and rebate captures that companies might otherwise not realize. In addition, since a business can calculate exactly when that money will be taken from their account, they have a clear view of their cash flow, enabling better decision-making. On the supplier side, digital payments mean the money is received automatically, eliminating costly and time-consuming check processing.

Along with on-time payments, digitization eliminates the chance for duplicate check or over/under payments. When the entire PO to payment cycle is digitized and automated, any attempt at duplicate payments will be flagged, as will payments that don’t match POs of final invoices.

Greater visibility – You can’t control what you can’t see. Once payments are digitized, AP will have visibility into any payment information to ensure accurate reporting of cash flows. Faster payments obviously benefit suppliers as well. When you add in a supplier portal, (which many payments solutions include), suppliers will also have visibility into their own payment status, giving them greater control over their working capital and cash flow.

Reduction in fraud – I didn’t indicate the elimination of fraud, since bad actors continue to find ways around every form of payment; however, when payments are digitized, it becomes more difficult with validation and security checks in place. Corcentric’s Payments solution, as an example, integrates a multi-point process to validate correct payment details and attributes to secure data (12 points in all).

Supplier relationships – Suppliers need to know what their cash position is at all times, just like their customers. When suppliers are given payment options, including ACH and v-card, and know exactly when payments will be received in their bank (electronic digital payments go directly to the supplier’s designated financial institution) it enables them to manage their own working capital better. This, in turn, may give the buyer preferred status which is a distinct competitive advantage. This becomes invaluable when dealing with supply chain issues and future contract and pricing negotiations.

For optimal results, turn to a payments service provider

Implementing initiatives like payments digitization on your own could be a daunting task, leading many companies to work with a third-party payments service provider, one that can supply all the tools necessary to have a streamlined, effective automated payments platform. Ideally, that provider will have a suite of solutions and services that can optimize your end-to-end, Source-to-Pay cycle. The Corcentric/PYMNTS report found that 84 percent of CFOs surveyed said they realized improvements in working capital because of digitized payment flows.


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.