Written by Anant Patel
For many years, the ultimate goal of online payments has always been a frictionless experience. With every additional click comes the risk for the customer to decide that the purchase isn’t worth the effort. Therefore, merchants must walk the line between security and giving their customers a smooth checkout experience.
With business to business (B2B) payments, both the pay in and the pay out require multiple steps to the sending, receiving, and paying of invoices. Automation has meant that most companies will be carrying out this process in a smarter way than mailing cheques to their suppliers. Although it is still a time-consuming process when eCommerce payments can be made seemingly instantly and outside of work, it is possible to easily and quickly send peer-to-peer payments with a few button presses.
When you understand the how and why of the payments process, you can begin to see why it can take 15, 30, even 60 days for B2B payments to arrive, and why a customer can pay a merchant instantly but that merchant can take five working days to refund a customer. You’ll also see that it doesn’t have to be this way – there are simpler, easier, and more profitable ways to carry out payments.
How payments typically work
When either a customer or a business makes an online payment, that payment will typically route through the following steps:
- A customer selects a payment method.
- They enter their details into a payment gateway (or their saved payment details are entered for them).
- Their payment details are encrypted and sent to the payment processor (also called an acquirer).
- The payment processor authorises the payment and sends it to the customer’s bank (or card issuer, digital wallet, etc.).
- The customer’s bank checks that the funds are available and, if they are, sends funds to the merchant’s bank.
- The payment processor will add fees during this process according to a usually very complicated set of criteria. Despite all of this, funds are typically available to the merchant within 3-5 business days.
In B2B payments the story is much more complicated, and payments take significantly longer: anywhere from 30 to 90 days. The process of transferring funds from one party to another isn’t fundamentally different from the above – wire transfers typically take around 24 hours. However, time is added by the administration required on either side of the process. A huge number of B2B transactions are still paper based, with invoices printed, mailed, input manually and then filed. These payments will obviously take time to create, send and process, but more modern digital payments will still need invoices to be produced, even if they are sent as PDFs via email or input into an ordering system. They will still need to be checked, reconciled against a purchase order and entered manually by the supplier, and often printed out and filed. Accounts payable and accounts receivable are skilled professions, and entire departments are dedicated to these functions at larger companies.
There are ways to automate this process and significantly speed it up, and of course corporate credit cards can be used on smaller purchases to pay instantly, but these only work if companies on both ends of a transaction agree to use them. If a supplier is using paper-based invoicing, then anyone who buys from them will be forced to use it, no matter how modern their customers are.
The end result of these inefficiencies is that when a company sends an invoice, it enters a queue behind dozens even hundreds or thousands of others, leading to huge delays. Furthermore, this system is prone to errors, either from mistakes during manual entry or simply losing a paper invoice. If this was how B2C commerce worked, then the entire economy would grind to a halt, but because of outdated practices and much more strenuous reporting requirements, many businesses are burdened with it.
The (disconnected) payments process
Another just as profound inefficiency can be found in the payments process: one unit of the bank allows a company to accept payments, but that company must use a separate area of the bank to make payments to suppliers. These two areas of the bank act as separate companies even though they’re under the same roof, and their clients must use completely disconnected systems for accepting and issuing payments.
Each might typically have a separate contract, further compounding the disconnect between the two halves of payments. This also makes reporting and reconciliation more difficult as they take place on two systems, and adding fraud prevention into the mix just adds an extra layer of complexity.
The key issue here is that when incoming and outgoing payments systems aren’t ‘talking’ to each other, companies have to wait for payments to go through the lengthy process of coming into the company’s account before the funds can be used. This leaves companies unable to pay their suppliers, and in some cases their staff, while they wait.
Cashflow problems are one of the strongest causes for businesses going under – a company can have any number of problems, but as long as it has more money coming in than going out, it will be able to stay afloat. When cashflow problems begin, they rarely resolve themselves – a company will enter a death-spiral that usually only a major exogenous event will be able to pull them out of. A retailer with cashflow issues, for example, could result in empty shelves, leading in turn to customer dissatisfaction, fewer sales and less cashflow to turn around its fortunes. Being able to access funds immediately rather than waiting days, weeks or months for payments would clearly be a benefit.
The unified platform
We’ve covered the problems that come from having a disconnected payment system, but what is possible when both elements of a payment system – accepting payments and making payments – are connected?
The first and possibly most significant improvement is that if paying in and paying out funds are connected, then it becomes possible to use the funds that are being sent to your company instantly instead of waiting several days for funds to make their way through the convoluted payments process. These incoming funds can be placed directly onto virtual cards in real time, which adds significant value to a business’ bottom line.
A single unified solution is also much easier to integrate: just one part of a disconnected payment system can take months, or even as much as a year, to integrate, particularly if a merchant has specific requirements. All-in-one payments solutions can take less than a month, saving companies hundreds of thousands of pounds. Since your incoming and outgoing payments are in a single platform, it is much easier to have a high-level oversight on all of your payments and fraud prevention efforts without having to integrate a third-party system.
Changing how payments work (simply and smartly)
Payments have been disconnected for many years, and it has been standard practice for so long that companies may not realise that it doesn’t have to be this way.
It is possible to have each piece of the payments process connected seamlessly inside a single platform, and in doing so access new ways of getting paid that build up cashflows that today’s companies need more than ever.
About the author:
Anant Patel is President, International Markets, at ConnexPay. With over 20 years of payments experience, Anant joined ConnexPay in January 2022. With his visionary core belief and mantra — “behaviours drive culture, and culture drives results” — Anant is a proven over-achiever and a new market creator, with an exceptional track record of identifying and maximizing new revenue opportunities. At ConnexPay, Anant is focused on building inclusive and diverse teams that consistently exceed expectations, driven by his outstanding relationship building and client management skills.
With a wealth of experience built at companies spanning the entire payments ecosystem, Anant’s payments technology background has seen him lead both fintech and corporate payments businesses in Europe and internationally. Prior roles include Vice President at Mastercard, Managing Director of EMEA for eNett, and EMEA Managing Director for First Performance Global, where he was tasked with leading the revolution on processing and refining customer experience. Most recently, Anant was Vice President, EMEA & APAC, for Corporate Payments at WEX Inc.
Anant holds a bachelor’s degree in computer studies from Nottingham Trent University and an MBA from the University of Warwick, UK.
ConnexPay is the first and only company to bring together the two sides of the payment process — payments acceptance and virtual payments issuing — into a single platform with one contract and one reconciliation. The flexibility of this technology allows clients to adopt the full end-to-end acquiring and issuing solution or leverage ConnexPay’s innovative intelligent routing issuing-only platform.
The company’s technology simplifies an antiquated workflow, eliminates the need for pre-funded accounts, reduces supplier risk and the cost of accepting card payments while safeguarding consumer spend. Founded in 2017, ConnexPay is an industry leader in payments for industries historically viewed as high risk to payment providers.