Among the biggest challenges posed by the pandemic is maintaining cash flow during a disrupted market. But a move into digital payment systems can help businesses—including buyers and sellers—weather the storm and improve their operations, Justin Main of Billtrust writes.

JustinMain-Billtrust

Justin Main

Just as COVID-19 has created a sizable surge in consumers’ adoption of digital payments, the crisis has accelerated a similar shift in the B2B space. Beyond the normal pressures of competition and changing customer demands and expectations, the series of unpredictable events sprung on businesses at the start of the year have added new complexity to what it takes to be successful today.

As many organizations battle against a backdrop where sales have slowed, they’ve had to adapt to a blazing change in where and how they work. Companies find themselves at an inflection point where embracing digitization has become mission-critical—especially when it comes to the order-to-cash process.

But the truth is, a reluctance to abandon traditional payment methods still exists in the B2B industry, as evidenced by the fact that 42% of B2B payments (which account for $25 trillion annually in the U.S.) are still made by paper check. But the winds of change are beginning to blow:  a recent study of small to large businesses found that 64% of firms say they are shifting away from physical invoices, and 70% say they’re planning to automate their accounts/receivable process.

Still, the actual progress to date has been slow.

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So while this enhanced appreciation for digitization on the back of the COVID-19 pandemic is certainly encouraging, it’s clear that there’s still a lot of headway to be made. And as a number of looming threats continue to target organizations’ financial health, time may be running out for those who fail to expedite their digital transformation.

A low cash- flow economy is accruing concerns

Among COVID-19’s many disruptions has been its negative impact on cash flow. But the truth is, COVID-19 isn’t entirely to blame for this low cash flow environment. 2019 research from The Hackett Group, for instance, found that firms were already starting to slow payments to suppliers as they experienced delays in collecting cash from their own customers. This caused both cash on hand and debt to reach record levels, the group says, despite significant improvements in working capital performance in the years prior to this dramatic decline.

There’s no denying that the pandemic and its ensuing economic downturn have created a list of challenges for businesses that are unlike anything they’ve experienced before. Besides the obvious—that COVID-19 has forced most businesses to develop survival-first responses that include reduced spending—several other factors have contributed to a landscape that’s strapped for cash and, as a result, has placed many businesses on the brink of collapse.

For one, supply chain disruptions have caused many businesses to go under and others to rethink the entirety of their global supply chains, meaning churn rates are higher. Second, accounts-receivable and accounts-payable teams who’ve been tasked with maintaining the financial health of their organizations have had to adapt to remote configurations almost overnight. With B2B payments historically lagging when it comes to technology adoption, this only compounds the complexity and inefficiency inherent in highly manual tasks and outdated processes.

And third, with studies finding that one-third of businesses say the biggest impact on cash flow is getting paid by clients on time, delays in receiving payments are proving to have significant negative consequences as organizations take hits to their days sales outstanding (DSO), the average number of days it takes a company to collect payment after a completing a sale. While lagging DSO is less of an imminent threat in ordinary times, in today’s landscape, predictable and timely cash flow is crucial for survival. Of course, this is bad news for companies that still rely on the delivery of paper checks. Roughly $10 trillion in B2B payments is still made by paper check in the U.S. every year.

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Shielding your bottom line with digital payments

With recent research from Atradius finding that 43% of invoices across the U.S., Mexico, and Canada are unpaid by their due date—which is a 25% increase from this time last year—businesses should embrace any solution that safeguards their finances and gets cash through the door more quickly.

After all, access to capital hasn’t been this tight since the market meltdown of 2008, and the chances of AR and collections teams assembling late payments in full drastically decreases the longer the invoice goes unpaid. This has led motivated players to find better, faster ways to move funds externally.

It’s even something that the U.S. government has been helping to set a precedent for since 2018, when they abolished paper checks and decided that all invoicing for business-to-government payments would only be accepted as electronic payments. When an institution that is notoriously slow in their adoption and implementation of technology has been embracing digital payments for a couple years, it’s fair to say that it’s past time for businesses to do the same.

The reality is, digitization benefits all stakeholders, including suppliers who risk forfeiting entire payments the longer an invoice goes unpaid, and buyers who are given greater transparency into their spending. So despite the many challenges listed above—or perhaps it’s because of these challenges—there’s no doubting that the B2B industry is finally ready to execute its very own digital transformation and embrace digital solutions that not only make it easier for them to get paid more quickly, but creates better customer experiences for their buyers, too.

Justin Main is vice president, integrated payments, for Billtrust, a provider of cloud-based invoice and payment management systems. Prior to Billtrust, he worked in sales management at such companies as online recruitment firms Dice and CareerBuilder.com.

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