For B2B businesses who have yet to ditch their paper-based invoicing processes and still rely on checks as their main method of taking payment, their reasons for not making the switch to digital are becoming harder and harder to justify.
Current macro-economic trends make it clear that to succeed, businesses need to put systems in place for accepting digital payments if they haven’t already—and fast. Beyond helping your business stay afloat in a remote world and meeting customer expectations, digitizing your payment channels and accounting processes minimizes effort, reduces costs, and accelerates cash flow.
In this blog, we’ll be delving into the economic trends signalling why it’s time to make the transition to digital payments, and what’s at stake for companies who choose to stick with their legacy processes.
Why the hesitation with digital payments?
But first, what makes finance and accounting teams hesitant to accept more digital payments in the first place?
Compared to waiting for checks to arrive in the mail and depositing them yourself or through a lockbox service, the relative immediacy of digital payments seems like a clear winner. The hitch for many businesses when it comes to accepting ACH payments—among the most popular electronic payment methods—is the effort they create for cash application because payment and remittance data must be matched after the fact. 74% of financial professionals surveyed by AFP said a lack of standard format for remittance information was a barrier to increasing their use of electronic payments.
Other digital payment methods that transmit remittance information along with the payment—like credit cards for instance—have challenges of their own. Many businesses are deterred from increasing their acceptance of credit card payments because of concerns over high processing fees and high manual effort involved in managing payment authorizations.
The good news is there’s technology to resolve all these challenges. Getting customers to pay you through an online portal helps with capturing the data needed to apply cash in the right place and many accounts receivable (AR) software options allow you to automate matching of remittance files with their respective payment. Working with a payment processor that uses interchange optimization can also help lower credit card processing costs.
With many solutions available to help your business easily accept digital payments, any doubts whether you should digitize your payment channels should slip away—especially considering how markets have changed since the pandemic.
3 reasons why businesses are moving towards digital payments
1. B2B customers expect consumer-like experiences
With the Amazons and Ubers of the world having conditioned us to expect ultra-convenient purchase experiences, it’s no surprise that B2B customer experiences are increasingly modeling themselves after B2C.
Ecommerce has grown considerably as a B2B payment channel, especially as companies pivoted online to maintain business continuity during the onset of the pandemic. As a result, B2B buyers are more comfortable making large purchases online, with 70% of decision makers saying they’d be open to making fully self-serve or remote purchases valuing over $50,000 and 27% saying they’re open to spending over $500,000.
Since having to adopt digital sales channels due to COVID-19 restrictions, both buyers and sellers are finding they prefer this arrangement, with over three quarters of them saying they prefer digital self-serve and remote engagement over face-to-face interactions. As B2B buyer behavior continues to migrate online, having systems in place to accept digital payments will be the expectation for your business.
2. Millennials make up the largest share of the workforce
In 2016, Millennials became the largest generation employed in the US labor force, eclipsing both Boomers and Gen Xers. Accounting for 35% of the workforce, Millennials’ experiences play an important role in shaping the course of businesses’ operations. Process-heavy roles—of which accounting is chock full—don’t appeal to this generation as much as their predecessors and filling those roles will be near impossible for organizations that don’t shift their approach.
Augmenting processes with accounts receivable automation can eliminate many of the manual tasks that take up AR teams’ entire days, freeing them up to focus on higher-value tasks likely to be more personally fulfilling. And with a team that derives higher satisfaction from their work, you'll be able to drive more strategic initiatives that benefit the business. Creating the digital payment ecosystem that allows for this level of efficiency and automation is the first step to achieving this, and getting your customers paying you online is a big piece of it.
3. Remote work is here to stay
The sudden shift to a remote workforce at the onset of the pandemic exposed just how flawed checks are as a payment method. With no one in offices to cut or pick up checks and a postal system overwhelmed by demand, businesses had to adapt payment processes quickly to support the mission-critical priority of maintaining cash flow.
Even after COVID-19, it appears that most offices will operate remotely to some degree. A Gartner survey found that 74% of CFOs intend to shift at least 5% of previously on-site employees to permanently remote positions after the pandemic. To adapt to these fundamental changes in the way we work, accounting processes will need to accommodate for some share of employees working remotely long-term. Embracing digital payments reduces your dependance on the paper-based processes that require teams to be in-office.
What happens if you don’t accept digital payments?
While the prospect of uprooting existing processes makes many accounting and finance leaders slow to enact digital transformation, what they may not realize are the risks of failing to offer what customers are begging for.
Choosing not to offer your customers the option to pay digitally can impact the overall health of your business in three key ways:
1. Revenue loss
Today, customers prioritize making purchases based on the most convenient option, even if there are cheaper alternatives elsewhere. With the barrier to switching suppliers lower than ever, a negative billing and payment experience could be enough to make a customer end their relationship with you. If any part of doing business with you is difficult, customers will seek the more convenient alternative—which could be your competitor.
2. Falling behind peers
Part of mitigating the risk of losing out to your competitors is understanding where they might be in their own digital transformation journey. A PYMNTS.com report from the fall of 2020 found that 83% of B2B companies surveyed changed their AR processes since the beginning of the pandemic and 66% are receiving more digital payments. For their part, customers are eager for this change, with 60% of financial professionals reporting they’re likely to convert most of their payments to suppliers from checks to electronic payments. Embracing digital payments and adapting AR to support them can mean the difference between keeping up with and falling behind your peers.
3. Operational challenges
Beyond maintaining positive customer sentiment by delivering an optimal experience, making the shift to digital payments has implications for your internal operations too. Paper processes and the labor required to support them can cost your business. Simply processing a single check costs between $4–20 on average according to Bank of America. These manual processes also slow down the speed at which you get paid, driving up Days Sales Outstanding (DSO)—by 30% according to PYMNTS.com, reducing cash flow, and limiting your business’ agility.
COVID-19 significantly accelerated the rate at which businesses are digitizing their operations. The way things are going, any company that can’t support digital payments will be an outlier. The longer you wait to kick off the process of digitizing your customers’ payment experience, the further you’ll be setting back your business. Get started on your digitization journey now.