Sid Vasili CEO, Invapay
Consumers are rapidly adopting new ways of paying for goods as new technology floods into the retail space. The world of B2B payments is evolving at an equally rapid pace but the adoption amongst companies is far, far slower.
We predict that B2B payments, over the next few years, will undergo the largest change ever seen since the second world. People used to think of payments as a simple process of moving money from one entity to another. But, it’s grown up and B2B payment technology means the systems are much more strategic and can be used as a planning tool, provide an additional source of credit and helps progressive organisations operate more efficiently.
Ultimately, CFOs are now seeing payment technology as a way to increase their profitability through better working capital management. Suppliers and procurement professionals see it as a way of reducing the administrative burden in their jobs.
At the centre of this development is the utilisation of card payment technology. The thought of cards in the B2B sector leaves some people scratching their head and wondering how it is applicable. Our starting point on this journey is a quick look at the history and evolution of cards.
A brief history of cards in commercial organisations
Corporate cards have always been seen as a handy little way to manage travel and entertainment spend – a flexible friend of the executive on the road. As time went on they were used as a way to replace petty cash and low value spend on cards such as office stationary or the cleaners. When the tech boom took hold in the late 90s the card networks were able to replace the need of a purchase order by using unique identifiers and virtual card numbers. Each transaction was then able to carry heaps of enriched data.
So, there’s no need for plastic anymore. The card has been replaced by a 16 digit account which acts as the credit line. The transaction is packed with more useful information than you can shake a stick at.
In short, card based payments are increasingly used as a strategy for managing account payables and receivables. Plus, financial systems are changing to support this with all major suppliers now supporting “card-based” payment and receivable modules. Systems and electronic payment mechanisms are becoming integrated into purchasing platforms which can improve elements of the entire procure to pay process.
So, this all sounds great on paper. But what are the tangible benefits? Rather than the spin, where is the substance?
Digital Payments – Making Organisations More Profitable. It’s a FACT
Deloitte recently commissioned one of the largest reports on this subject in Australia and New Zealand. It’s a long report and a summary and the detail can be found here:
There are a number of key indicators which illustrate the importance of digital payments.
• 93% of all payments are now made electronically. No big surprise there, you might say, but it’s the growth rates in how these payments are made which is of interest…
• Between 2011 and 2014 the growth in B2B spend on cards is 42% in Australia and 66% in New Zealand. People might rightly ask “well, perhaps there’s something unique to the Australian and New Zealand markets which makes that possible. Is that a reflection of what we see here?”
I regularly travel across Asia, Europe and America speaking to executives in Finance and Procurement. What I always see are similarities in the problems they face in managing their organisation. The top three are generally:
• I want to get more out of my working capital.
• I want to reduce the time spend dealing with accounts payable and accounts receivable issues.
• I want to improve the tax and regulatory burden associated with compliance.
The use of 16 digit accounts through the card schemes can help all of these problems. Here are a few headline numbers from the Deloitte report…
• 68% of people interviewed experienced a reduction in their administration. Respondents indicated they are able to manage their cash flow more accurately and efficiently.
• 85% felt they achieved benefits through use of a card programme.
• Invoice processing costs were $20 on a card based process versus $73 when using a traditional purchase order.
The arguments to change are compelling.
So what’s stopped everyone from doing this?
One of the largest barriers to adoption is the fact that people can’t take card payments. At Invapay we’ve overcome this through advanced adaption of the technology. Our systems transfers a credit card payment into a bank transfer so anyone can receive a payment whether they are set up to accept a card or not. It’s simple and we can have our system up and running in 24 hours with a back-up team always on hand to support.
Our advice is this…don’t let any of your previous experience or perceptions about payment technology cloud your decision. The change is happening and the chances are your competitors are already taking note. The benefits are tangible and can make a real difference to your organisation’s financial performance.