Among best-in-class B2B payments solutions, the “tail” of financing and discounting increasingly “wags the dog” of simple money movement. For payers and their solution providers, enrolling and connecting payees and their myriad solutions has long been a laborious challenge. That’s why leading providers have acknowledged the need for B2B partner ecosystems or directories to help make those connections easier. Dynamic discounting and supply chain finance innovators are delivering real value, but so far with largely standalone offerings. Even so, from an ecosystem perspective, the card world has significant advantages: it offers today a standardized financing model, with solutions delivered by a large ecosystem of providers. The profitability of the card business to those providers, relative to ACH or other platforms, is a key factor both in motivating and financing innovation.
Among businesses, especially small to mid-size, offering customers a discount for early payment is a fairly common practice. Discount terms such as “2% 10, Net 30” are understood by most businesses. Some 20% are willing to offer discounts for earlier payment, and significantly more when it’s requested by a customer. A dirty secret of the business and B2B payments world, however, is the number of customers who don’t stick to agreed payment terms. Customers often pay later than agreed, sometimes stretching 30 day terms to 60, 90 days or even later. With early payment terms too, some customers may take a discount even when paying after the, say, 10 day cut-off. Small and mid-sized suppliers, with tight cashflow and limited financing options, suffer the most.
Part of the problem – and a reason for suppliers not to offer such terms – is their inability to enforce payment terms, such as the cut-off date for an early payment discount. But technology solutions already in wide use today are under-appreciated as a potential solution. That’s especially so when combined with card, an invoice payment method that more and more buyers are preferring, as a way to defer payment and generate rebate revenue.
Many small business financial solutions today offer sellers electronic invoicing and payment functionality. Emailed invoices link through to a web page that, if enabled by the seller, allows customers to pay electronically. Customers can enter their bank details to make a payment via ACH – typically the cheapest option for the seller. Some sellers also choose to enable a card payment option for their customers. However, the card option has historically been less attractive for B2B invoices. Reasons for this include the relatively larger dollar amounts, high costs for card payments and – crucially – the inability to limit card acceptance to ONLY customer payments that actually are made early.
But this kind of problem is easily solved by technology. A customer entering their web payment on, say, day ten after the invoice date could see the card payment option. Entering their payment a day later, they don’t. Customers’ desire to pay using their preferred payment method of card, combined with this kind of technology, can motivate them to pay early. Better yet, it could also help limit behaviors such as early payment discounts being deducted from a late mailed check.
Such a model, if adopted by small business technology providers and their customers, could provide relatively near term cashflow and revenue benefits to all parties. Card networks can help promote this through programs and pricing that create appropriate incentives. It is not, however, a silver bullet. Web invoice payment functionality like this can influence the payment behavior of customers who are smaller businesses, and indeed consumers. But mid-sized or larger businesses, even those actively promoting card acceptance to their suppliers, typically won’t pay through a web interface.
Early web implementations like this can, however, deliver a fairly rapid ROI to providers – and at the same time, create the business conditions for larger scale changes later. Already, increasing numbers of enterprises are adopting supplier payment solutions whose economics rely on enrolling suppliers to accept card, itself a costly and troublesome process. Both they and their suppliers who had already chosen to offer card early payment terms would then have a shared interest. Both would want such suppliers’ invoices to be flagged in the payer’s system as eligible for card payment – along with the date by which such payment must be made. Automation via network solutions could help to make this a seamless, low cost process for both parties, from enrollment and setup, all the way through to payment initiation, processing and reconciliation.
Crucially though, such automation solutions would not be required upfront. Early card payment implementations by web e-invoicing solutions can deliver immediate benefits in their own right. And over time, they can help catalyze a much larger shift towards automated, electronic B2B payments and financing solutions.