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Author's profile photo Ruud Willemsen

4 reasons why the B2B payment process is going to change

/wp-content/uploads/2015/09/online_payments_aribapay_315x214_781813.jpgLet’s be honest: B2B payments are complicated, much more complicated than payments made by consumers. You’re often dealing with timing issues caused by a changing payment term, while a payment run often includes multiple invoices. That processing takes hours, because information about the wire transfer is difficult to find. Yet business financial transactions no longer have to be complicated. The power of contemporary business networks play a large part in this.

Transactions in the course of business are often done the traditional way. Party A will make out an invoice for Party B and then send it. Party B receives the invoice and on that basis will book a payment with the bank. The transaction then takes place between two bank accounts, in the best case about 30 days after the service was supplied. In this digital economy this is hopelessly old-fashioned, unnecessarily slow and high risk. Luckily it can be done differently.

The traditional invoicing process has four focus points:

1) Slow – In the business world there is still a big gaping hole between the supplied service and the moment of payment. The usual payment term of thirty days is actually a strange phenomenon. In the consumer world it is unthinkable that someone goes grocery shopping and happily tells the cashier that they will most likely come back next month to pay for the full shopping cart. This phenomenon remains mainly for cash flow reasons: because every company compensates a delay in income by postponing payments x amount of days.

2) Labor intensive and error sensitive – It goes hand in hand with work done manually and is (therefore) sensitive to errors. Think of double payments, “lost” invoices, or incorrect bank account numbers.

3) Not transparent – The status of the invoice is not immediately insightful. The only thing Party A can do to gather information is make a phone call to the administration department of Party B.

4) Fraud sensitive – Especially for larger organizations that process dozens of invoices per day, oversight is just not there. Invoices are sometimes gratuitously agreed upon and that promotes fraud. Ghost invoices can cost companies a lot of money.

The most important reason why paper invoices are so popular is the large amount of information that you can literally staple to them. And companies need that information, especially because there is a large time difference between the payment and the actual service.

E-invoicing: a first step
In the last few years, large steps have been made regarding digitalization of this lengthy invoicing process. But all those loose e-invoicing services are missing a last link: a provision for making the actual financial transactions. A halfhearted link with the bank is often the only option. Moreover, these platforms are often difficult to use for external parties and a proliferation of services only adds to the confusion.

Digital network
The solution is the integration of e-invoicing within a digital company network, including a digital payment system. With a digital payment system incoming invoices can be processed and paid immediately; without human intervention. A connected bank company will process the payments in the background.

This is an enormous efficiency battle in the field of labor intensity and error sensitivity. Names and account numbers are always correct because they come directly from the profiles of the companies that are members. Work done manually is reduced to a minimum. Information and status of transactions are retrievable, always and everywhere, and in real-time. The payment orders are furthermore linked automatically to the accompanying invoices that are also linked to the supplied service. Therefore, complete ‘procure-to-pay’. And because of this transparency, ghost invoices have become irrelevant.

In this digital, hyper connected economy paper invoices are really a thing of the past. Digital payment systems integrated into business networks bring the ease of services such as Paypal with solutions like AribaPay to the business world.

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