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Posted by Jack Dsouja - 11 August, 2020

Digital Disruption in B2B Payments due to the Pandemic

If one thing is true for 2020, there is no such thing as business as usual. From unforeseen closures to unexpected demand, businesses of all sizes and types have struggled this year and cash flow is a key part of these struggles. This blog will explore payment trends and solutions for a post-COVID world.

Digital Transformation and Automation in a Work from Home World.

With more accounts receivable and payables teams working from home, modernizing payment terms through digital transformation and automation will be key to a predictable cash flow. The quality of a company’s receivable performance management can improve as long as they know how to embrace the digital transformation and working from home in a quality manner.

Remote work in pandemicSource

For example, a recent article that was published by the United States Bureau of Labor Statistics (BLS) showed that an increasing number of employees are now working from home. While remote working had been on the rise prior to the pandemic, the COVID-19 crisis has accelerated this shift. An article that was published by Erik Brynjolfsson et al. estimated that nearly a third of workers who were working in-person in March of 2020 were working from home by the first week of April. This same paper estimated that many workers will continue to work from home even after the pandemic is under control.

As a result, team members are no longer in the office to mail invoices and print checks. This will force companies to shift the manner in which they handle payments. Investing in digital technologies will rapidly address evolving customer preferences and potential cash flow issues.

Automating the A/R Process Improves Cash Flow Management

Investing in A/R automation has many advantages including helping with cash flow. These benefits include:

Less Time Is  Wasted

Automation in a remote setting
Source

Using automation can help with generating reports and communications with customers. This frees up your A/R team to invest their energy in strategic planning and customer service and makes your team more scalable. A recent paper that was published by EVO B2B indicated that automating AR management could save up to 50 percent of the time typically spend processing bills and payments.

Faster Invoices and Payments

A/R automation can ensure customers are invoiced on time and contacted sooner for late payments via automated emails. Instead of relying on employees to send these emails, an automated system ensures accuracy and timeliness. Furthermore, this automated system provides customers with the ability to respond to invoices and submit payments right from their emails. This should increase the rate of on-time payments as well.

DSO average customer payemtn

Improve AR Metrics

Automation can help organizations improve several A/R metrics, such as days sales outstanding (DSO) and average time to pay (ATP). A recent survey found that the median DSO score is 43.5 days and those in the top 25% had a DSO of 25.1 days. By using an automated credit solution, you can ensure invoices are paid promptly and follow-up emails are sent at the right intervals.

More Control Over the Process

Right now, most businesses are at the mercy of their cash flows, particularly with margins incredibly tight during the pandemic. Automating A/R processes can provide you with customizable reports that show you what you want to see. You can decide what you want to measure with reports that are easy for you to read, interpret, and tweak to meet your needs. You can also decide who you want to be involved in this process ranging from yourself to cash managers, sales reps, or a separate department entirely.

Increase Customer Service Satisfaction

Not only can automation give your team more time for customer service, but also decrease misapplied payments and data errors. Research shows people make a mistake every 300 keystrokes. Automation will allow team members to have more time to address customer concerns and have fewer errors to correct which leads to an increase in customer satisfaction. Furthermore, automated emails can also provide more communication with customers. This will make interactions more personal, increasing customer loyalty.

These are just a few of the most important benefits that come from automating A/R processes. All of these benefits will improve a business's cash flow during difficult times.

Digitizing the Payment Process

Digitizing the payment process is more than recording it in an ERP. Digitizing payment processing means accessing all your payment options. It should be about creating as little manual work for both employees and customers. While this may sound obvious, a recent study from AP Now found that up to three-quarters of payments that are made by businesses are still done by check. Furthermore, the majority of these companies are still not taking steps to reduce their paper check volumes despite the rising importance of digital payments. Digitizing the payment process can help:

Save Time

The fact remains that paper checks waste time. Checks have to be processed and mail adds days to DSO. Not to mention the time teams spend dealing with “lost checks.” With digital payments, many of these steps are cut out, saving time. Furthermore, digital checks are far less likely to get lost, freeing up valuable team member time to focus on more important matters.

Save Money

Fewer manual tasks mean your A/R process is more scalable and fewer team members will be needed. If the process needs to increase, it is easy to expand the operation because there are fewer team members required to carry out these tasks. It can also save money by allowing you to offer additional payment options which can lower transaction fees.

Increase eCommerce Sales

Digital Disruption in b2b eCommerce
(Source)

Over 40% of B2B transactions are processed through a net payment terms program. By offering corporate accounts online, companies see larger transaction volume, higher customer adoption, and client acquisition. eCommerce is only going to continue to grow, with one recent article showing that the percentage of eCommerce sales in the retail market is expected to reach close to 25 percent in the next few years. Companies that don't have a reliable digital payment method for eCommerce sales are missing out on a huge revenue stream, particularly with the rise of mobile sales.

The Rise of Mobile Sales

The vast majority of sales today can be carried out in a mobile setting. This includes everything from making a mortgage payment to buying a cup of coffee. Furthermore, these are statistics showing that mobile sales are only going to continue to grow. Consider these numbers:

  • More than three-quarters of B2B companies believe that the future of online commerce is in the mobile setting, according to Usablenet.
  • Already, B2B generates around 20 percent of its digital commerce revenue from mobile channels and this is only going to grow, according to Gartner.
  • More than half of all B2B executives indicate that they are comfortable handling business-related purchases on a mobile device, speaking to the convenience factor, according to Forbes.

These statistics only show that the world of mobile sales will continue to grow, forcing companies to adapt to digital payment methods if they want to keep up.

Increase Customer Satisfaction

A good customer portal is key to digitizing the payment process. Customers should be able to set up their purchasing team, auto-payments, and request credit limit increases through their online portal. Statistics show that the rise of mobile payments is going to drive customer demand for digital payment options. Some of the statistics show that:

  • Close to 90 percent of merchants are going to support online payments, as online shopping only grows in popularity.
  • Proximity mobile payments are on the rise, particularly in China, where more than 80 percent of smartphone users had made a proximity mobile payment recently.
  • The number of users processing mobile payment transactions is expected to pass 1 billion this year and will reach more than 1.3 billion by 2023.

This only goes to show that customers are going to expect more digital payment options. In order to keep up with the competition, businesses will have to find a way to make digital payment options available.

Unforeseen Closures and Demand

Cash flow is an issue. Perhaps you didn't predict that your best customer would be closed for three months. Maybe there has been skyrocketing demand that has driven up your overhead costs. While automation and digital payments can help with cash flow, risk is another key factor in the payment process.

Impact of Pandemic on small businesssource

About 24% of businesses admit to never scoring their credit and collections portfolio and only 20% score their customers monthly. The COVID-19 pandemic has shown how fast a successful business can go to zero revenue and the need to score customers on a regular basis. Recently, an article was published by the Washington Post showing just how severe the impact of the COVID-19 pandemic has been on small businesses. Some of the information they published demonstrated that:

  • During a survey of small businesses between May 9 and May 11, close to 2 percent had gone out of business.
  • In the restaurant industry, nearly 3 percent of operators have gone out of business (data provided by the National Restaurant Association).
  • Of the 30 million small businesses in the nation, only 4 million had received emergency loans at the time the article was published.
  • Economists are predicting that close to 100,000 small businesses could end up going out of business.

Clearly, these are difficult times for small businesses and the decisions they make amidst these unprecedented circumstances could decide whether they stay in business. Incorporating automated credit scoring in your credit and collection operations can create faster and better quality decisions, enhanced customer service, and significantly reduced overhead.

Using a payment solution such as Apruve can make offering net terms as easy and risk-free as taking a credit card. Apruve ties together your company’s order management software to a network of lenders, funding transactions as they happen. Apruve and their lender network regularly score customers and make adjustments to credit lines while providing funds within 24-hours of invoicing. Apruve is one of the most versatile options on the market for advanced payment solutions.

Another way to reduce is to partner with an equipment financing lender. According to the Equipment Leasing and Finance Association, almost 80 percent of U.S. businesses use equipment leasing and financing to acquire assets they need to operate. Offering equipment financing through a partner makes it easier for your customers to make larger purchases and gives them the flexibility to make monthly payments while not disputing your cash flow.

Offering pre-pay as a payment option to risky customers is a great way to limit risk without the transactional fees of credit cards. It can also help with international sales. It eliminates the uncertainty of selling in foreign entities, and there is no need to develop credit databases or risk strategies to drive growth globally. Expanding sales globally can be a great way to increase revenue and offering pre-pay can lower the risk and make cash flow predictable.

A New Normal in the Business World

For 2020, business as usual is a thing of the past. Working from home has increased the need for digital payments and automation. While remote working was already on the rise prior to the pandemic, the COVID-19 health crisis has accelerated a shift toward working from home. Instead of assuming workers are going to return to the office soon, companies need to take steps to adapt to a new normal. This involves remote working. In order for businesses to keep a consistent cash flow, they need to monitor their levels of risk and offer new payment methods. This will help them maintain an edge on their competition.

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Topics: Payments, extending credit, Net Terms

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