I’d like to dispel some common misconceptions about B2B payments. First, the misconception that vendors don’t want to be paid by check. Next, let's dispel the notion that vendors won’t take card payments.
I've worked in payments for a couple of decades now. I’ve managed cash handling, check processing, and lockbox operations. I’ve spent the last 10 years or so in the Mastercard B2B space. Based on my experience, I can tell you what vendors really want: convenience and choice.
It used to be that the customer could dictate a payment method and vendors had no choice but to accept. That has been slowly changing. We saw a lot more vendors raising their hands to ask for electronic payments during the COVID-19 Pandemic, but this shift began even before that. Fintech companies have introduced a lot of new payment options, and vendors are more aware that they have choices.
It now falls to buyers to give vendors the convenience and choice they want, without overburdening their accounts payable departments. That means using automation to streamline payment and vendor enablement workflows. AP can then easily accommodate all payment types and let vendors choose what’s most convenient for them.
When vendors want to be paid by check, it's often because they have some sort of mechanism that makes it easy to process them. In larger companies for example, that often means using their treasury bank to do lockbox processing for them. Banks will often provide this service for free to win other, more profitable business.
The bank collects all the checks from the lockbox, keys in the data and deposits them. All accounts receivable has to do is absorb a file that has all of the check data. That is a pretty clean process, and a compelling reason to be paid by check.
What about ACH? There’s no paper to handle, and the vendor gets the money faster. Why wouldn’t they want ACH payments? Well, ACH fraud is on the rise, and not all vendors want to risk exposing their banking data to their buyers.
Vendors might actually prefer a single use credit card. The common wisdom against that thought is that vendors won’t want to pay credit card fees. The reality is that virtual cards are gaining in popularity because you get paid fast and fraud risk is low. You don’t have to expose your banking data, and the card number becomes unusable once it’s been processed. For some vendors, that’s worth the fee.
The point is there’s a market for all payment types. For a buyer to limit themselves to just one or two payment options is to potentially limit whom they can do business with. With all the supply chain problems we’ve been experiencing it’s incredibly important to keep your vendors happy. The best way to do that is to make sure they get paid on time, in the manner of their choosing.
The problem, as many AP teams learned during the pandemic, is that doing electronic payments at scale is a lot harder than it seems at first glance.
You need to have the resources to enable vendors for electronic payments, on an ongoing basis. That means continual outreach to find out which vendors will accept a card or an ACH. It means collecting and verifying their banking data when you onboard them, and having processes in place to verify any requests to change bank account information. It means having a way to know if a virtual card payment hasn’t been processed, and a way of dealing with a card that is still open.
You also need very strong systems and processes in place to protect your organization against ACH fraud. If you’re not up to speed on using technology to validate and secure vendor information, and fend off fraud attacks, you’re putting your organization at risk.
AP teams already tend to be short-staffed. Turnover is high, and the amount of process documentation they have is low. They don’t have the capacity to take on this extra work.
Here’s where it gets good: AP teams shouldn’t have to take on extra work to make electronic payments work. The whole process can be streamlined by working with a payment automation provider. Automation providers typically provide a single workflow for all types of payments. All the person in AP has to do is select who to pay, and the provider will pay each vendor by their preferred method.
More importantly, automation providers take on all the work of enablement, including outreach and safeguarding vendor data. They also indemnify their customers against fraud. It couldn’t be more streamlined--all AP really has to do is click pay.
Checks have been the prevalent B2B payment method for a very long time, and for some very good reasons. The COVID-19 Pandemic, and our current supply chain woes, have made many organizations reconsider check use.
Vendors are increasingly aware that they do not have to let the buyer dictate how they get paid. Vendors now know that they are able to come to buyers and say, "We've got three payment options for you to choose from,”.
Fintech companies are providing new choices for buyers, too. Payment automation lets them offer vendors convenience and choice, without inconveniencing themselves. It’s a win-win, and that is the best possible way to build a relationship.
Learn more with our upcoming webinar: How Streamlining Your AP Enhances Your Vendor Relationships. Register here.