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There has been a significant shift in the functioning of businesses in recent years. As more and more people started working remotely, the challenges of cash flow management and working capital optimisation have become apparent.
Legacy accounting systems have also become ill-suited for managing business continuity in such a scenario. These systems could not provide accounts receivable teams visibility, transparency, and flexibility for cash management and payment collection. As a result, businesses worldwide have started adopting modernised accounts receivable (AR) processes.
Manually managing accounts receivables is not only labour-intensive but also quite time-consuming. A comprehensive AR automation software will facilitate the digital transformation of your business, so it is crucial to choose wisely.
In the following sections, we will look into the challenges of completing AR processes manually. We will also provide a step-by-step guide for narrowing down the best AR automation software for your business.
Most businesses have an Accounts Receivables policy in place, which lays down the ground rules for payment collections and the process of billing. However, in executing this AR policy, most businesses make mistakes. Small mistakes can lead to overdue invoices, resulting in cash flow bottlenecks that drain the capital needed to grow the business, hire new employees, and buy new equipment.
Here are some of the other challenges of an inefficient manual AR collection process –
Tracking how much money is coming in and out of your business requires analysing cash flow changes which can be time-consuming. Cash flow management involves the following:
It takes considerable effort and time to send invoices and receive payments using manual processes. On top of this, if the customer does not pay on time, the wait time can put additional stress on your budget and cash flow.
Reconciling payments with a manual AR process is another challenging aspect of cash flow management. Because the payment information comes in different file formats, it must be matched manually with corresponding payments. Your team might have to spend hours synchronising data and reconciling it with outstanding accounts receivable. Even if you hire additional staff for the AR processes, a manual system will always be error-prone and sluggish.
Adopting an AR automation software is crucial if you want to see efficient reconciliation. AR automation facilitates the automatic sending of invoices on a scheduled date, so you don’t have to worry about forgetting to send invoices on time. It also includes payments automation that automatically reconciles payments and attaches them to the correct invoices.
Another time-consuming task in the Accounts Receivable (AR) process is investigating and resolving disputes around unexpected payments. The manual management of the process makes it all the more difficult. Using an AR automation tool will help you avoid all these issues.
AR automation is always data-based, so internal teams and customers get complete transparency and visibility into the agreed and owed amounts. Thus, the automated platform will essentially work as the single source of truth on information about all open receivables. Minimising errors and avoiding data duplication contribute to the timely resolution of any form of dispute in collections.
As a business, you would always want to ensure that you extend credit to customers who are diligent with their payments. However, evaluating the right people for credit extension requires visibility into their behaviours and payment history. Determining the creditworthiness of individuals can be another time-consuming task and costly if you are to hire credit agencies to do it for you.
An automated AR system helps manage credit risks. With Modern AR automation platforms, you can access business credit scores within the system without subscribing to a separate credit reporting service. This will allow you to look into the customer’s payment behaviour – are they usually a little late on a payment? Do they pay the full amount? Equipped with the necessary information, you will be able to decide which accounts need closer monitoring and which ones need more lenient handling.
Another major challenge with manual AR collections is chasing the customers for payments. The traditional methods of collecting payments require a lot of time, energy, and resources. Your AR teams would have to send payment reminders to the customers through dunning letters or by calling them.
Besides distracting your team from other high-value activities, repeated calls and emails can also sour your relationship with the customers. It is essential to work smarter using AR automation software in such a situation. Rather than hounding all your customers, AR automation software will guide you to pursue the most at-risk accounts. Modern AR automation also integrates with online payment platforms so your customers can pay you quickly through multiple digital payment options. The more you lessen the friction on how and when customers can pay you, the easier it is to receive those payments.
Choosing the right AR automation software will help you overcome the challenges mentioned above. To derive a better and quicker return on investment (ROI), you should ensure that your chosen AR automation tool can meet all your unique requirements. Here are the basic steps involved in selecting the best AR automation software for your business.
Before you start researching the various options for AR automation software, it is important to first connect with the team members who the new solution would directly impact.
The first step in choosing the right AR automation tool is to understand the main challenges faced by your team members. Understanding their requirements will help you set clear objectives about what you want from an AR automation tool. It would help if you also considered any existing tools your teams and colleagues use to ensure that you do not duplicate the effort. You will also be able to find out why the current solutions cannot meet the needs of the teams.
Here are some critical questions you can ask in this step:
With these questions, you will identify which AR processes need to be automated most urgently to improve the system’s efficiency.
Once you have identified the gaps in your AR process, you need to look for vendors providing AR automation solutions that will help you plug those gaps. Good AR automation software solutions will allow you to automate the AR workflows while also providing options for customisation.
When selecting an AR solution from the various options available, examine the following:
While choosing a new AR automation solution, you also need to consider what your partnership will look like post-implementation.
1. Customisation options
There can be times when a one-size meets all AR solution will not work for your company, especially when the existing systems are complex. To get the maximum value from your AR process, you need to find a solution that comes with customisation options.
2. Excellent customer service
Another critical thing to look for is your software provider’s track record of excellent customer service. A provider committed to improving your experience with the software and your interactions with them is a big part of the equation to ensure your success with AR automation.
If you are looking for a smarter way to manage your B2B accounts receivables processes, ezyCollect AR Collection Software is your choice. ezyCollect’s robust system will help you get paid faster while accelerating your cash recovery rate.
Book a demo today, and let our AR automation experts walk you through solutions for your business.
Digital payments are the key to unlocking optimisations in payment transactions. Digital payments have been the way for many B2C transactions for years but haven’t gained the same prevalence in the B2B space until recently. With the COVID-19 pandemic accelerating e-commerce and increasing customer expectations toward using technology, B2B organisations will inevitably march toward digital payments.
But the march has been slow – the reality is not many companies have adopted B2B payment automation yet. A study published in the Next-Gen Digital Payments Report shows that 51% of the B2B respondents are yet to digitalise their accounts receivables and accounts payables, which means more than half of the respondents do not have a solid payment digitalisation plan.
Here, we discuss what digital B2B payments are, the challenges of B2B payments and how you can start to leverage digital technology to improve your payments process.
Any payment or receipt of money for goods or services made between two businesses using an electronic medium is a digital B2B payment. B2B payments can be a one time or recurring transaction depending on the contractual agreement between the buyer and supplier.
Digital B2B payments include online payment platforms and use technologies such as APIs for integration with other software and automation to streamline workflows. Advanced technologies such as blockchain and artificial intelligence (AI) are also making their way into the B2B space. It won’t be long before we see these technologies further redefine digital payments.
Economies worldwide recognise the importance of digital technology in improving business efficiency and profitability. In Australia, the latest tax break incentive for businesses adapting digital technology – including payment systems – emphasised just how crucial it is in building healthier businesses.
Additionally, giving your B2B clients an automated payment system will ensure you:
There are different options available for businesses regarding payment receipt methods. Here are the most-commonly used B2B payment methods with their pros and cons.
Paper cheques are still one of the most popular payment methods today. It is much safer than direct cash transactions, and they are also the easiest to adopt – being used for years as a standard B2B payment method.
Direct Debit authorises another party to collect payments from an account when they are due by completing a Direct Debit Authority Form. Direct Debits are used for any kind of payment, but it’s most often used as a safe and convenient way to make recurring payments.
Direct Debit used to be the privilege of bigger and more established businesses with many customers, but technology has democratised and simplified the systems involved. Now any business – big or small – can benefit from the Direct Debit payment’s speed, convenience, and security.
A wire transfer is a bank transfer wherein your client has your bank account details, and they make the payment directly from their account to yours.
A wire transfer is different from a Direct Debit in that it is not limited to the currency of a business’ local banking system. Wire transfers are also usually processed within the same day, whereas Direct Debits can take a couple of days.
Credit cards are a borrowing mechanism that banks give both B2C buyers and B2B companies. Any business using a credit card can borrow money from their bank to make payment to you for the products/services they have purchased from you. But you will always be assured of your payment since the bank pre-pays you on your buyer’s behalf.
Many banks offer credit cards that are specifically designed for business payments. These cards also offer desirable deals that enable users to waive certain fees, earn bonus points, allow business savings and avail of a cash advance facility, amongst other features.
B2B Payment Terms sets the payment agreement between you as the supplier and your clients. While creating a standard agreement across all of your clients is ideal and is the simplest option, the reality is each of your clients may require different terms depending on their financial situation.
Instalment payments allow your customers to choose a plan and pay in portions rather than paying full price up-front. With this agreement, you can receive consistent payment amounts to your business over the time period you’ve agreed upon, thereby reducing your financial risk by not waiting for your client to pay the total amount.
You can sync your instalment payments to a milestone met. We’ll touch upon milestone payments later in this article. But to illustrate, let’s say you receive the first instalment of your entire bill when you deliver the first batch of raw materials to your clients. Then you continue to receive each instalment as subsequent deliveries are made. You can choose even to charge interest on instalments, but that’s not mandatory. An equated monthly instalment (EMI) is an example of a commonly-used B2B instalment scheme.
Instalments are essentially a flexible payment method and can help with customer retention. You can offer your clients the payment technologies mentioned earlier to make each instalment payment.
Milestone payments are frequently used in the services industries and help buyers build trust with suppliers. Payment upon delivery is a good example of milestone-based payment. For suppliers, milestones help you retain your end of the deal—you receive the payment only when you make any progress to the service/product you have to deliver.
In B2B transactions, it’s common for suppliers to extend their payment terms to their customers – called Net Terms. Net Terms allow businesses to pay for orders within a certain period after invoicing instead of paying it upfront.
The most common set-up is for businesses to be allowed to pay 30, 60, or 90 days after they receive goods or services, with no interest. From a buyer’s perspective, this can be beneficial to their working capital as they have a chance to resell goods or to use the raw materials for manufacturing and send the goods to distributors before the bill is due. Some suppliers may even offer discounts if the invoice has been paid before they are due.
As net terms are important to buyers, it will do well for suppliers to offer them. Suppliers benefit by providing a more attractive payment scheme, thus improving customer retention, and that is reflected in an improvement in sales and an increase in order volume.
However, Net Terms can also affect the supplier’s cash flow. The supplier must monitor payments via Accounts Receivable automation to ensure that payments are made on time as agreed upon by the two parties.
Choosing a B2B payment option isn’t always easy. Here are a couple of challenges that you need to look out for when evaluating which B2B payment method to offer your customers:
To address the issues surrounding B2B payments, the efficiency and reliability of systems used are essential, and the ability of payment systems to accept various payment methods.
Understanding the nature of B2B payments and the issues that can arise during transactions has paved the way for B2B payment automation. And with digital technology becoming more sophisticated yet accessible, automation takes a step further with digitalisation.
Indeed, Digital B2B payments are increasingly becoming the payment method of choice for many businesses in today’s economic landscape. Here’s why:
According to new predictions made by FIS in the latest Global Payments report, only 2.1% of payments will be made by cash in Australia by 2024.
There’s no doubt that there is an ongoing shift toward digital payments. With the benefits accompanying it proving to be substantial, now is the right time to start planning how you can digitalise your payments. Here are some tips to help you get started:
Contact an accounts receivables automation expert to help customise a digital payment system for your business. Book a free demo of ezyCollect and discover how AR automation and B2B digital payments can work for you.
The past decade has seen a marked proliferation of e-commerce. This is leading business-to-business (B2B) payment merchants to strengthen their digital payments infrastructure. Over the past couple of years, the world has struggled to get to grips with the COVID-19 pandemic, as a consequence, a lot has changed even for business-to-consumer (B2C) companies, who are now bracing for the transition to digital payments.
According to a study conducted by McKinsey & Co., 66 per cent of participants say that digital sales options for customers have become more important during the pandemic, compared to traditional sales options. Also, it revealed that the trend of omnichannel sales methods supersedes that of traditional methods after the pandemic.
So, it becomes imperative for B2B companies to address these changes in customer expectations triggered by the pandemic and the collective transition to digital payments, characterized by automation. B2B buyers now look for variety, ease, and convenience while transacting—something that B2B payment automation can provide. With the improvement in payment options for B2B buyers come the benefits of increased customer satisfaction and transaction conversions, ultimately leading to business success.
Here’s how B2B merchants can keep pace with the changing payment landscape:
Now, B2B merchants should look for ways to recreate the B2C payment experience for their customers. B2B buyers look for ease while transacting, and companies that offer multiple payment options can provide them with instant gratification. Contactless B2C digital payments can also be done in the B2B landscape in real-time by adding features like wire transfer, credit card, and digital wallets.
B2B companies can stay abreast of the changing payment landscape by digitizing their accounts receivables. This can be achieved using automated onboarding, which can save them time and money by eliminating time-consuming credit decisions, emails forms, PDF invoices, and manual bank reconciliations. B2B payment automation can provide buyers with consolidated periodic invoices and give companies more control over their cash flow.
B2B customers show a preference to transact more when they hold a credit line and have forged a financial relationship with the company. For getting a leg up over competitors, B2B companies can offer their customers the ability to get instant credit while making a purchase. Such a strategy can help companies retain their customers and win their loyalty.
B2B business identity theft and fraud have become increasingly common as the customer acquisition process occurs online. As such, security is something B2B companies should pay attention to. They need to leverage advanced fraud detection software and processes to protect themselves and their customers. A well-developed security solution can definitely fraud-proof the payment infrastructure and build risk-aversion abilities.
B2B payment landscape is becoming increasingly digitized, and companies will have to adapt to these changes. In order to keep up, B2B companies need to review and evaluate their existing payment system to use technology to streamline areas where it’s necessary. Creating and adopting an omnichannel payment strategy can greatly help B2B companies get an edge over their competitors.
At ezyCollect, we understand the importance of modernizing your payments in order to keep up with the rapidly changing digital world. We provide Accounts Receivables Automation software that helps businesses automate and digitize their payments. Our solution is designed to help businesses get paid faster and easier, so they can focus on what they do best.
It is almost the end of the year, and while in some ways 2020 and 2021 sort of merge together in our public memory, the pandemic and it’s after-effects have accelerated the digital trend in b2b and b2c. While many were first hesitant to embrace the lifestyle that digitisation provided, being digital-first is now an indispensable part of business. Upgrading to the latest technology is no longer a want but a necessity. As a result, digital transformation is now more than a buzzword in most industries. While the industrial sector embraced it years ago, the service sector is also increasingly becoming more digitalised. One of the areas that have recently undergone massive digital transformation is payments.
Take a moment to see how we pay for our clothing, french fries, or a new coffee table? Today, a large number of people make their payments over the internet, especially with the explosive growth of online shopping and D2C brands.
As most retail customers demand user-friendly, secure, and fast payment options, traditional banks and digital experts have focussed their efforts on developing processes to meet the needs of their customers. While significant steps have been taken to automate traditional banking procedures, little has been done to improve business-to-business payment experiences.
Business-to-customer (B2C) transactions are often believed to have reached historic heights, particularly during the pandemic. The truth is that they are still minuscule when compared to business-to-business (B2B) transactions. As per a UNCTAD report, in 2019, B2C e-commerce was estimated to be around USD 4.9 trillion. On the contrary, global B2B e-commerce was valued at USD 21.8 trillion in the same year. This provides a clear estimate of the potential in B2B payments and automation. Therefore, many new players have begun to work on ideas to develop and modernise payments for businesses.
Before diving into how B2B payments can be automated, it is important to understand what sets them apart from B2C transactions. The following are some critical factors that have a significant impact on B2B payments.
1. The Number of People Involved in Decision Making
In a business firm, no payment decision is ever made by a single person alone. Every business transaction directly or indirectly has an effect on various stakeholders like customers, shareholders, managers, employees, and so on. Therefore, on average, five to seven stakeholders are involved when any payment-related decision has to be made.
When many people participate in the decision-making process, inevitably, there would be a delay in reaching a final decision. Since B2B payments typically include the opinion of 5 or more stakeholders, decision-making takes a longer time. In fact, delays in the payment cycle constitute a big problem for almost 30% of middle-market companies.
Unlike retail customers who purchase small quantities, businesses tend to buy in bulk from wholesalers. Buying in bulk not only allows them to get trade discounts but also enables them to sell large quantities to customers. Since their purchases are in huge quantities, the transactions are also worth several thousand.
Customers that shop in stores usually do it when they have a specific need. This could be a one-time purchase from a certain store over several months. Businesses, on the other hand, must always ensure that they have enough stock to offer their customers. That is why they make regular and recurring purchases, as they also prefer to build long-term healthy relations with their sellers.
The nature of B2B transactions, as well as the terms and circumstances that apply to them, differ from industry to industry. Each industry has its own set of laws, regulations, and payment requirements. Every contract is unique, and the delivery method, quality control procedure, invoicing, payment, and other terms depend on the industry’s generally accepted norms. As a result, B2B payments are far more complicated than B2C payments.
Despite these differences, the demand for faster and more efficient processes has grown in the B2B sector as well. Now, business owners and entrepreneurs also desire similar payment services that retail customers enjoy already. This would not only save them time and money, but it would also help them enhance their other business operations. As a result, banks and fintech firms are working hard to close the gap and provide useful solutions to the payment issues that businesses face regularly. According to a 2021 Statista report, 34% of companies all around the world have expressed their willingness to switch to fintech solutions.
To understand how to automate B2B payments, we must first identify the issues that businesses have with the current system. Delays, fraud, manual processing, and visibility are some of the most common problems with B2B payments. As a result, new B2B solutions must address and seek to resolve these difficulties. The following are some of the most important B2B payment trends for 2021.
1. Transition from manual processing to automation
A large number of companies still process payments manually. Manual processing is bound to have errors and may prove to be insecure as well. Moreover, it would take longer to manage all the payments manually. Instead of continuing to process payments inefficiently when done manually, it is better to invest time and resources in more efficient automated processing solutions.
B2B payment automation solves practically all the problems that come with manual processing. It provides more control and visibility over the transactions and, at the same time, saves operating costs and time. Adopting AR automation software, for example, allows a company’s accounts receivables team to automate repetitive and time-consuming processes while increasing their cash flow and collection efficiency. Instead, they can devote their time and energy toward more productive or strategic projects. Similarly, integrating a payment API (Application Programming Interface) with an ERP (Enterprise Resource Planning) software would help the company in managing the payments and sharing banking data in a safe manner. More than anywhere else, electronic transactions are surely a game-changer in B2B payments as they make them more efficient, secure, convenient, fast, and instant. Digital payments give buyers and suppliers various growth prospects by allowing firms to focus their time and resources on more profitable areas.
2. Managing risk through multi-factor authentication
As e-commerce and online transactions are growing, businesses are also increasingly complaining of cyberattacks and payment frauds. One of the ways to solve this problem and provide a platform for more secure payments is Strong Customer Authentication (SCA). It is a requirement of the European Union that was enforced in 2019 and has already been implemented by most member countries. Two-factor and multi-factor authentication are formed on the basis of the use of multiple ways of authentication.
Knowledge: an element that only the user is aware of.
Possession: use of a device that only the user possesses.
Inherence: something that the user is.
The extra layer provided in the form of multi-factor authentication blocks the access of hackers and scammers to company accounts and thus, protects data and offers secure payments. Apart from these, multi-factor authentication has numerous benefits. Some of them are:
3. Overcoming payment delays
As mentioned earlier, payment delays are a major issue that most middle-market businesses have to deal with. According to a study, 44% of B2B SMEs said that late payments seriously hamper their business performance. Such delays in payment not only impact the company’s cash flow but also affect their reputation and relations with clients and suppliers. There could be various reasons for payment delays, such as insufficient funds available at a given point, long payment terms, and outdated payment methods.
Accepting digital payments simplifies, speeds up, and simplifies the process of payment processing. It enables companies to make rapid and error-free payments. Via electronic payments, they can keep track of late payments and also automate payment schedules.
4. Improving visibility
Most businesses do not have end-to-end visibility over their transactions. This means that they can only assume that their incoming payments are on time and their outgoing payments are reaching their destination before prescribed deadlines. Using digital systems, businesses are able to view every payment as it goes through the system. It gives businesses greater predictability and control over cash flow, business relations, and operations.
To summarise, B2B payments can be optimised by automating them. Digital payments provide numerous benefits like better security, faster processing, real-time updates, end-to-end visibility which help businesses provide the right payment experience for customers and also for their internal employees.