Accounts payable (AP) automation technology has hit the ground running, with solutions designed to accelerate invoice processing, optimize payment strategies and promote digital adoption. Yet, with AP solution providers enticed by the high payment volumes and values of the B2B arena, emerging solutions can sometimes be too large for the mom-and-pop shop on Main Street.
That’s not to say that small- to medium-sized business (SMB) invoice payment challenges are any easier to overcome. Paper checks remain pervasive, and with many AP tools too complex to deploy, small firms rely on manual processes to pay their suppliers.
Matan Bar, co-founder and CEO of Melio Payments, recently spoke with PYMNTS about the challenges that small businesses face when digitizing their invoice payment procedures, even with a recent surge in digital, automated AP solutions.
“We talked with more than 100 small business owners across industries, and almost none used an accounts payable automation solution,” he said. “They either stuffed envelopes with checks and licked stamps or they used their bank’s bill payment tool — which is too simple and archaic.”
Finding A Middle Ground
For many small businesses, invoice payment options are vast, but few actually fit their needs, according to Bar. AP automation solutions are designed for finance departments managing high volumes of invoices, with these end-users able to see a high-value proposition from automated tools. That may not necessarily be as attractive to smaller firms, however.
“When you upload an invoice on [AP automation solutions], the focus is on which department needs to approve the invoice before it gets paid,” Bar explained. “SMBs don’t have departments. When you’re a small business, and you have 60 or 80 payments a month, automation is nice, but it’s definitely not the value proposition that will shift businesses off checks.”
On the other hand, he said, consumer-facing payment tools like Venmo are too simple for small businesses to deploy in their supplier payment operations. The result? Businesses that embrace Venmo in their personal lives, as well as high-tech B2C payment solutions like Square, end up in the back office mailing paper checks.
Conflict Of Interest
As small businesses search for the middle ground between complex AP automation tools and inefficient consumer payment apps, Bar said there is another kind of middle ground that the B2B payments industry is searching for, too.
“Buyers and sellers in the B2B world, they do not share interests, many times,” he said. “There’s a conflict of interest. A buyer wants to pay as late as possible. However, a vendor wants to receive money as fast as possible. And the interesting thing is that this conflict of interest dictates different payment preferences from each side.”
Perhaps the most obvious reflection of this challenge can be seen in the commercial card space. While corporate buyers are eager to pay invoices with cards to take advantage of rewards points and extra capital float, suppliers are frequently reluctant to invest in the infrastructure necessary to accept card payments, not to mention the burden of interchange fees.
It’s among the biggest differences between B2B and B2C payments, Bar noted. In the consumer payments world, if a coffee shop doesn’t accept cards, a customer can simply go to a competing coffee shop. However, in the B2B space, buyer-supplier relationships are strategic and long-lasting, particularly when SMBs are working with major vendors like Google that cannot be strong-armed into accepting card payments.
“We live in a world where two sides must agree on a payment method,” said Bar, noting that this reality is why paper checks remain so commonplace in B2B transactions. B2B payment technologies that seek to address the small business customer must be able to “decouple” buyer and seller payment preferences. He added that solutions like Melio are able to support bank transfers or card payments on the buyer side, then push out bank deposits or paper check payments for vendors.
Where Faster Payments Fits
That pervasive conflict of interest between buyers and sellers regarding the speed with which they wish to transact begs an important question in the broader payments innovation landscape: With corporate and small business payers seeking ways to slow down their payments, how could faster and real-time payment capabilities ever gain traction in the B2B arena?
Indeed, Bar predicted that adoption will be limited in this space. Yet, there is one particular opportunity for faster payments to find its place in B2B transactions.
“What we see is, many times, buyers are paying bills at the last minute, on the due date,” he said. “Faster payments can offer these buyers a service that can enable them to pay [same] day, and the money will actually be delivered to the vendor today. That’s a big deal, and [a] strong use case [for faster payments], that can definitely increase adoption.”
Faster payment capabilities will also be an important part of the puzzle for B2B payment solution providers, too, he said, enabling these technology companies to receive funds from corporate buyers faster, and ensure that those funds land in a supplier’s account same day as well. It’s a significant opportunity for companies of all sizes, but with small businesses continuing to be underserved, Bar noted that technological innovations will open up more doors for service providers to fill that gap.
“There’s a really big need for a Venmo for small businesses,” he said. “What happened with B2B payments is that too many companies were attracted to solving for big SMBs or middle market. What we’ll probably see is more companies recognizing that small businesses are truly underserved.”