There is a clear difference between fintechs and banks. Banks look at business payments as a product, while fintech see them as a process to be optimized.
What does that really mean? Optimization is a term we throw around a lot, usually in relationship to costs or processes. Costs are relatively easy to optimize, because they’re easy to see and measure. The business case is simple to make.
Making the case for process optimization is a lot harder, however, because the costs are hidden and hard to measure. And when we get really good at running a process, we no longer realize just how complicated that process really is. We’ve got something that’s working, so we keep doing it the same way. If we think about optimization at all, we look at pieces of the process and see if we can make them faster or cheaper. But then we often overlook new technology that can radically change or even eliminate part or all of the process.
For example, smartphones have radically changed and/or eliminated the use of alarm clocks, radios, landlines, paper calendars, cameras, feature phones, weather reports, and more. Those all still “work,” but why have all those different pieces and processes for each when you could have a smartphone?
Few people, if any, make the effort to figure out how much time and money they save by switching to a smart phone having all that functionality in a single portable device. You’d have to add up the hard costs, break down each process into its component parts, and then assign a value to the time you spend on each. No one would do that, because by now just about everyone realizes that smart phones offer a faster, easier, more convenient way to do things. But that’s exactly what you have to do to make a case for changing a business process.
To make the case for optimizing the B2B payment process, you need to evaluate three key areas:
Transactional costs. This seems pretty straightforward: what does it cost to send an ACH or wire, or print and mail a check? This cost includes transaction fees, check stock, envelopes, stamps. But there can be additional fees for delivering standard or upgraded remittance information, positive pay, returned checks, and research on lost or erroneous ACH payments. Be sure to consider all of these when making your business case.
Rebates. This also seems straightforward: how much spend can you get on card, and what’s that likely to yield in rebates? But there are some nuances. First, not all rebates are the same—they vary in terms of rules and payout percentages. Some rebates don’t kick in until you hit a certain threshold, while others pay out monthly, annually, or semi-annually and you must figure in the time value of money as well. Others pay less if you don’t choose to pay your balance off daily or weekly. Then there are exceptions like Level 2 and 3 processing and large ticket charges. I would suggest taking a look back at previous years to see what you actually earned vs. what you remember from the sales pitch.They are often vastly different.
Operational efficiency. This is where you can get sucked down a rabbit hole. But it’s also where you can really transform your business.
There are several factors to consider. What does your go-to-market strategy look like? Is it phone calls, mailers? Does your AP team participate? Your procurement team? How many vendors accept card? ACH? Who collects, keys in, and updates the banking information? How is it secured?
There are also questions to ask when creating payment files for transmission. How many different file types must IT work to create and test, and how often are you sending? How long does it take, and who does it? Is the approval built into the system? Or is it manual and paper-based?
When collecting physical signatures on checks, how many people are involved? How much time do they spend? What is their hourly pay rate?
Is remittance advice stuffed in envelopes and mailed? Emailed? Is it automatic or do you need to create, save to desktop, and manually send?
It's also important to track phone calls asking about payments, tracking down and reissuing lost or erroneous payments, managing early payment discounts and late payments.
Updating supplier's banking and payment information is also a challenge. Our research shows suppliers change their banking setup about every four years, meaning you’re updating 25% percent of suppliers annually. But in this day and age, you can’t just accept supplier updates at face value. You have to validate those requests to make sure it’s not fraud or phishing. Who handles that, how long does it take, and how much do they get paid? Do you have a liability policy for fraudulent payments? What has fraud cost your business historically?
How much does it all add up to? Very few organizations really know. There are benchmarking studies out there on the costs of writing checks, and of processing invoices. But no study I have seen recently considers the entire process, beginning with supplier enablement and ending with a reconciled payment.
