Digital transformation (DX) has been a priority for businesses for years—and for good reason. More than 89% of companies plan to adopt a “digital-first” strategy, and this shift has been easier to implement because many of the barriers to adopting cloud solutions no longer exist. However, many businesses are failing to take their cloud-first strategy far enough, with 30% of companies going no further than adopting cloud solutions for IT services. To fully embrace the benefits of DX, businesses must include finance in their digital strategies.
The move toward digital has been a long time coming in the B2B space, and it has the power to improve efficiency and completely transform the buyer experience. While DX looks different for every business, it often involves updating systems, implementing widespread digital solutions, and creating a cohesive omnichannel experience internally and externally. Business-to-business digital transformations often differ from business-to-consumer transformations because they often require the business to restructure its selling channels and sales approach to remove commerce barriers and create frictionless purchasing experiences.
Finance holds the key to successful B2B DX
Because B2B organizations today have the ability to reach more customers around the world through a number of channels, they have shifted more toward improving the buyer experience. To keep pace with competition and reach more customers, B2B brands have embraced new selling channels and ways of interacting with potential buyers. But, with more selling channels comes more data, which not only increases the burden on IT systems, but also financial systems—many of which are antiquated, on-premises solutions.
Every aspect of a business’s finance technology stack should be included as part of a DX strategy. As B2B organizations restructure the channels through which they are reaching customers, from ecommerce platforms to traditional point-of-sale systems, this restructuring will impact every piece of their finance technology environment. Fortunately, it’s likely that most businesses will pay close attention to the technology they are using for customer-facing processes, like product website browsing and payment. Still, there is one area of finance that cannot be overlooked throughout the DX process: tax compliance. Here’s why:
♦ Businesses are going global
Ecommerce has made it possible for businesses to sell their wares and source their products from virtually anywhere in the world. For example, an office supplier in France can now easily and cost-efficiently purchase supplies and products from manufacturers in the United States. However, the road to global B2B ecommerce is riddled with compliance challenges. Many businesses are ill-prepared to handle the complexity of customs duty and import tax, for instance, as these regulations often vary significantly by country.
For example, if a flip-flop-style sandal is made of rubber, duty rates of 9% in the United States and 16% in Canada apply. But if you’re selling leather flip-flops, both countries change their rate: in Canada, it goes up to 18%, but in the U.S., the product is now duty-free. Given the breadth and complexity associated with being able to accurately and efficiently calculate tax and duties on international transactions, doing so without a cloud-based tax solution is virtually impossible.
♦ The Internet is changing sales tax
The increase in U.S. cross-border and globalization of commerce has also prompted taxing authorities around the world to take note of the tremendous amount of digital transactions taking place. They have introduced legislation to capture revenue accordingly. Recent changes to sales tax governance, like the introduction of economic nexus in the United States, which lets states require merchants to collect sales tax whether or not a seller has an in-state physical presence; and new digital tax initiatives across Europe, Asia, and South America, have accelerated the need for more real-time, reliable compliance solutions. These new regulations have significantly increased the sales tax obligation for manufacturers and retailers alike, making it nearly impossible for businesses to keep track of the changing rules and achieve compliance without the help of digital tools.
♦ The use of disparate business systems
Most companies are using a range of financial tools to run their business across multiple selling channels. From point-of-sale systems to ecommerce platforms, businesses are managing a growing amount of data—both customer and product—across numerous systems. But how are businesses able to manage all this data that is captured and stored in disparate systems? Automated cloud-based tax compliance solutions integrate across business systems, which creates a centralized hub for data aggregation in addition to accurate tax calculation, helping businesses to manage compliance and, ultimately, better serve their customers.
As we move forward, we can expect that B2B DX strategies will begin to focus even more on the finance side of the business as they need to improve buyer experiences across channels becomes an urgent priority. As organizations analyze their finance technology stack, the way they are managing tax compliance will be a key factor in their ability to successfully adopt a digital-first strategy.
The broad adoption of omnichannel selling as a strategy has opened the door for many B2B organizations to grow exponentially by allowing them to reach new customers across the globe and improve overall business efficiency. As a result, the adoption of automated tax compliance solutions has become a requirement for B2B organizations who want to minimize their audit risk, effectively harness business data, and reduce friction throughout the customer journey.
Amit Mathradas is president and chief operating officer of Avalara Inc., a provider of tax management software. Prior to Avalara, he was the general manager and head of the small and medium business segment for North America at PayPal. He also served in senior leadership roles at Web.com and Dell.Favorite