Payments to suppliers are a major business expense for most organisations. Yet up until now there’s been little innovation in this part of the corporate IT world. B2B payments are still largely seen as a cost of doing business. This needs to change, because existing inefficiencies in these processes have a knock-on effect that can seriously impact business performance.
Simple, effective solutions are needed to integrate into existing systems, optimising payments and driving wider business success.
The cost of doing business
Around half of FTSE 350 firms have more than 500 suppliers, and around a third have over 2,000, according to Optal research. More than two-fifths (44%) told us that they receive over 2,000 invoices each month that need to be processed and paid on time. These amount to a great deal of money: over a third of firms said they spend between £20m and £249m each month with their suppliers.
Legacy payment processes have their down sides. Cheques are familiar but slow, prone to human error and loss or theft. Bank transfers are faster but also prone to human error and difficult to audit. Third-party payment platforms can help with much of the heavy lifting but fall down because firms rarely work with a single payment environment.
Credit cards offer a great solution; however, some suppliers don’t accept them due to the extra financial and administrative burden they place on them.
When DSO meets DPO
Whatever payment processes they use, the challenge facing finance teams will always remain the same: suppliers need to be paid accurately and on time. If they aren’t, key supply chain relationships will suffer, potentially impacting end customers and the bottom line. But shorter days sales outstanding (DSO) means reduced days payable outstanding (DPO). This conflict restricts working capital for organisations, which is bad news for any business.
Working capital is a vital pre-requisite to growth. Without liquidity, businesses can’t invest in staff, R&D, new market expansion, and so on. In short, reduced working capital stifles growth. It’s a problem affecting many firms. According to a recent global report from PwC, there’s been a steady decline in Capex spend relative to revenue at a compound annual rate of 3.6% over the past five years.
In fact, the firm claimed that if all the businesses in the survey were to improve their working capital efficiency, it could generate a €1.3 trillion cash opportunity — enough to boost capital investment by 55%.
Time to innovate
The question is, how can firms achieve these gains given current B2B payment inefficiencies? The answer lies with innovative new supplier payment platforms which act as a payment transmitter, enabling clients to pay all their suppliers by credit card — even those that don’t accept cards. They pay by card and the fintech intermediary then forwards those funds to the supplier by EFT.
Thus, finance bosses can consolidate multiple payment methods into one, streamlined process for all suppliers. This reduces overheads while enabling them to maximise DPO and therefore working capital thanks to the relatively long interest-free payment terms on commercial credit lines.
Optimised working capital means more funds to invest in growth to maximise business performance. Lenders benefit from their customers maximising credit card usage, while suppliers get paid on time, every time.
To find out more on how Invapay could transform B2B payments for your organisation, read our new eBook, Payments Alternatives, today.