Today businesses are facing pressure to generate revenue through increased efficiencies across internal processes. One opportunity for doing this is through greater integration within accounts payable and procurement functions, delivering improved working capital and visibility across all payments. For example, companies are centralizing via payment service centers. But there are ways to go further. This paper will explore the benefits of broad-based global payments solutions targeting business to business (B2B) outflows and how they can help a business achieve its revenue goals. Given that the card components of these solutions are least understood, the focus will be on the advantages of card and how to implement.
The case for global B2B payment solutions
Payment efficiency initiatives have typically been designed and executed in silos versus the consideration of a holistic approach to all of an organization’s payments. More forward-looking organizations are beginning to see the value of a higher level view and they are merging, or at least working together across the accounts payable and procurement organizations, to develop global payment strategies that are evaluated on a broader continuum. Increasingly, this includes a centralized payments distribution model that requires broader analysis around a global payments approach.
Today these global B2B payment solutions tend to be designed around card programs along with the more traditional ACH and wire. The card components include traditional physical plastic cards for low-level spends, for direct, quick purchases and more sophisticated virtual card offerings which provide working capital solutions for much larger value purchases. Programs of this type support, or in some cases stimulate, an organization’s push to optimize their accounts payable and procurement functions. Central to a card program is improved visibility, control, and overall reconciliation of large amounts of global spend, which typically align to a CFO, Treasury, or a Procurement executive strategic revenue goals.
When choosing how to deploy purchasing card and virtual card solutions, a detailed analysis should be conducted on, at minimum, 12 months of an organization’s total supplier spend. This exercise will illustrate the distribution of spend in terms of total spend and frequency of spend. Implementing a global B2B payment solution, that includes card, offers a number of key advantages. These include:
To date, the benefits of improved cash flow have been generally viewed as buyer-centric, rather than providing tangible benefit to the supplier. However, as the industry evolves, card programs that provide a strong working capital value chain for both the corporate and their supplier will be required. By design, global card programs encourage buyers to consider renegotiating payment terms and/or provide invoice discounting to their suppliers as a way to help the supplier get paid faster and more predictably.
Implementing a B2B card program
When considering a global B2B card program it is good to build the business case for internal approvals by quantifying the savings. For example, card-processing costs are less than a quarter of that of traditional purchase orders, representing a savings of approximately $70 per transaction1. Yet despite the benefits of using card and digital account-based payment mechanisms, there are many organizations that have not yet implemented such programs. Crafting a strong business case that highlights the economic potential of reduced operating expenses, improved working capital and capture of rebate revenue will help drive support throughout the organization.
In the past, companies wishing to derive the benefits of a centralized payments approach simply have not analyzed their global spend, nor have they computed the actual costs associated with executing payments to their suppliers. Moreover, organizations typically have a wide range of supplier payment terms (i.e. Net 30, Net 60) that are not aligned to a comprehensive payment strategy. As buyers consider a global B2B card program, they should consider providers that can help them analyze their global spend and in turn provide detailed recommendations regarding how they can improve operating efficiencies and improved working capital. For example, a provider should discuss with a buyer how a global card solution can support payment term renegotiations with suppliers given that cards have the ability to provide buyers with additional cash float. Using a typical example, a buyer could shorten supplier terms from Net 60 to Net 30 while improving their Days Sales Outstanding from an average of 2 to 5 days to 25 days or more, a drastic improvement for the supplier.
A major consideration for a successful global B2B card program is supplier acceptance of card. An organization should seek a provider that can demonstrate its approach and success in driving supplier engagement and overall acceptance of card. A qualified provider will showcase its approach to analyzing spend, the potential conversion rates of that spend, and specific supplier campaign tactics. A common best practice is for the provider to determine which suppliers accept card as a form of payment today, and then evaluate the relationship between specific payment terms and the various payment methods, i.e. check, wire, ACH.
A global B2B card program has a greater chance of success if the right decision makers are engaged, often consisting of a cross-matrixed group of individuals from accounts payable, procurement, treasury, finance, IT and project management. Similarly, a cross functional support team can prove invaluable in driving and executing change throughout the organization. It is crucial that, along with the provider, the organization establishes a clear program of measurement goals and metrics in order to assess the success of the solution. Once the analysis above has been conducted, the challenge then becomes finding a payments solution /product that aligns to an organization’s goals of centralizing payment activities.
Measuring your new B2B payment solution
Once an organization has implemented a global B2B payment solution, measuring its effect on the organization becomes key. It is essential to develop metrics that are driven by transaction type and the tangible benefits accruing to the organization, such as improvement in cost of funds, reduction in paper processing, improved payment workflow and supplier delight. In other words, the metrics should tie back to the original business case for the B2B solution. Typically, metrics need to capture the organization’s spend using various payment methods from check and ACH to wire and cards. They could include transaction values, frequency of payments and distribution of payment types. In addition, the cost savings on the migration from low-value spend to card spend need to be modeled and supplier card acceptance needs to be routinely monitored.
Evolving your new B2B payment solution
It is useful to build C-suite level routines that report out progress as the global B2B payment solution matures. The successful migration to a B2B payment solution can be strengthened by establishing corporate mandates that require certain transaction levels be paid by card vs. other costly payment methods, where such mandates are supported by formal processes and policies. Finally, it is important to establish an ongoing routine with the provider to be confident that the solution is delivering the expected value to the organization and their suppliers. In most cases, it will be necessary to organize and conduct additional supplier engagement campaigns so that maximum working capital benefit and operating efficiencies are realized.
1Source: 2014 purchasing card Benchmark Survey results, RPMG Research Corporation
- Paying global suppliers via card can help your company generate revenue, reduce costs and boost working capital
- Switching to card payments can also benefit your suppliers by helping them get paid faster and more predictably
- When choosing a card provider, look for expertise in supplier on boarding, plus tools to help you analyze your spending patterns