“There’s no crystal ball that can tell us how long the pandemic will continue to impact how businesses operate and collect payments, but we can safely assume it will be for most of 2021,” our CEO Craig O’Neill told me earlier this month. “Most workers won’t return to in-office activities and won’t be able to write or process checks, so it’s critical they take their finance processes digital now.”
Coming off the tail end of a turbulent year, the defining themes for B2B payments in 2021 are shaping up to be:
In this blog, we’ll break down the top five B2B payment trends that will shape 2021.
Finance teams that are still hesitant to digitize their accounts payable (AP) and accounts receivable (AR) processes will find they’re being left behind.
After having to pivot to digital commerce models due to the pandemic, many B2B buyers and suppliers now prefer these new channels. They see that before making the switch, they were falling short of customer expectations and undermining their operational efficiency.
Research from Gartner points to the “consumerization of the B2B commerce experience,” where “businesses that support and encourage digital commerce and digital payment will see faster growth and increasing market share compared to those that do not.”
2021 will be an important transitional year, as the 70% of B2B businesses who plan to implement new tech to help them manage their AR take the steps to do so, and the remaining 30% come to the realization that they need to do the same.
While consistently in decline in recent years, the B2B world has not been able to kick its affinity for using checks. AFP’s 2019 Electronic Payments Survey found that although check usage in B2B transactions has fallen to an all-time low of 42%, they remain the most popular payment method.
Checks have long been a tried-and-true B2B payment method mostly because finance teams know how to handle them and CFOs haven’t been eager to uproot legacy processes. But as working remotely continues to be the story of 2021 and as teams struggle to maintain business as usual, check usage will no doubt decline more sharply. The need to support a remote workforce is just the latest nail in the coffin for checks, with slower payment times, high manual effort, and substantial processing costs presenting their own issues.
Many teams have already made the leap to distance their organization from checks. AFP’s 2020 Payments Survey found that a third of respondents are already primarily using electronic payments for their B2B transactions and nearly 60% report being likely to convert most of their payments from checks to electronic payments.
With the elimination of checks from AR processes though, teams exchange one challenge for another. Electronic payments like ACH make it difficult for suppliers to apply payments to open receivables as remittance data travels separately. AR specialists have the arduous task of manually matching payments with the right invoice.
This is the main reason teams have been hesitant to increase their use of electronic payments, with finance professionals citing an absence of standard format for remittance information and a lack of integration with accounting systems—74% and 71% respectively—as their main barriers.
As the need for contactless and remote payments intensified over the past year, so have efforts to solve “the remittance problem.” One way finance leaders will increase acceptance of digital payments without creating more work for their teams is by utilizing “smart payments.”
“Smart payments carry business information so that as systems transact with each other, there’s data flowing along with the money,” says Craig. “The ideal outcome is for these systems to work in coordination, applying cash in the right places and closing the correct invoices, replacing much of the manual work AP and AR teams do today.”
As B2B customers have grown more comfortable with digital environments due to the pandemic, adoption of smart payment methods will be much easier to incentivize.
Beyond simplifying AR processes for teams internally, better availability of payment data can do wonders for reducing friction in how B2B buyers and suppliers transact with one another.
In 2021, forward-thinking banks, card networks and providers, and software vendors will be working to create a better payment ecosystem that addresses longstanding hiccups in B2B payment processes.
This is the idea of collaborative commerce, where companies do business together through their connected systems, allowing for more automation in the order-to-cash process and reducing time spent facilitating both sides of a transaction.
The concept of collaborative commerce is in its early stages but quickly gaining momentum as businesses collectively realize how friction in payment processes hurts their bottom line and payment innovators see solving this as a priority.
Back in October of 2020, in conversation with PYMNTS.com, Visa’s Head of Global Business Solutions, Kevin Phalen stated that in 2021, collaborative commerce would be “a reality moving into a maturity,” citing increased connectivity, standardization for the way data is moved, transparency, and ease of collaboration between buyers and suppliers as core focus areas.
Another key B2B payment trend in 2021 will be increased support for flexible payment options.
A study of small businesses found that offering multiple payment options helped businesses increase their revenue by nearly 30%, and those that accepted four or more payment options brought in seven times more annual revenue than those who offered fewer options.
B2B companies are becoming more sensitive to this, with support for emerging payment methods like virtual cards and mobile payments like Apple Pay increasing. Greater options for B2B buyers create richer customer experiences and help suppliers get cash in faster.
For B2B finance teams, 2021 will be the year for adapting to changing buyer expectations and creating the systems needed to support payments and processes digitally. Although this year will be much like the last in its unpredictability, you can take comfort in knowing that going digital is a future-proof strategy. The one thing you can’t afford to do is continue to put off digitization, hurting both your customers and your business.
Want to learn more about the macro trends shaping the future of B2B payments? Hear Craig O’Neill speak on the Sage Thought Leadership Podcast.
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