Pat Bermingham, CEO, Adflex, explains how digital business payments technology is helping to redefine buyer and supplier relationships, benefitting those willing to embrace change, for long-term gain.

Many supply chain businesses still rely on traditional paper invoicing and BACS to pay their suppliers. While this approach is familiar and has its advantages, the stretching of standard payment terms causes suppliers serious cash flow issues. Arguably the most high-profile example of this is in the construction industry, which has been beset by late payment issues for years; so much so that the UK government has recently stepped in to introduce a legal requirement for construction companies to pay 95% of invoices to small businesses within 30 days.[1]

On the surface, it appears the odds are stacked against suppliers but, in truth, it’s a lot more complex. The current model doesn’t really benefit the buyer either. So why are so many businesses using a broken system? Often, they think it’s easier. After all, any change means some form of disruption, and after almost two years of a pandemic, it’s understandable that most businesses just want a return to ‘normal’.

But take a closer look at this ‘normal’ and you can’t help but question it. Maintaining complex and admin-heavy payments processes means companies struggle to onboard new suppliers. The high volume of human and capital resources required is a significant ‘process overhead’ and can be so cumbersome that many supply chain businesses prefer to stay with a limited handful of partners.

This decision to engage with only a fraction of the available market has a knock-on effect – it reduces competition, innovation and inevitably pushes prices up. If competitors can offer a smoother payment process, you also risk losing hard-earned relationships (and all the benefits they bring) to rivals.

Look to other UK business sectors and you can see that the advent of digital payment technologies is shaking things up. B2B transactions are being simplified and new payment services like straight-though processing (STP) and virtual cards are helping firms work with a much wider pool of suppliers and, importantly, pay them promptly too.

What exactly are digital payments?

Digital payments, sometimes referred to as electronic payments, exist wherever the payer and payee both use digital modes to send and receive money. It isn’t turning finance upside-down, but it is expanding choice with multiple payment methods and making the management of money much easier.

Traditional invoicing is a burden, but it needs to be done. But it doesn’t need to be done with time-consuming, expensive manual labour. Some companies are now using cloud-based, fully-managed payment platforms, and use bespoke digital systems to receive e-invoices, cost-allocate and then reconcile them, all without human input.

Centralised automation of this kind creates serious efficiencies, freeing up big chunks of time that can be reallocated elsewhere. Larger firms that regularly purchase from different suppliers make substantial savings through this practice alone.

Often supporting this automation are ‘virtual cards’. These function in the same way as normal commercial credit cards, but minus the plastic. By going digital, the cards themselves can be endlessly reissued and the rules that govern them quickly reprogrammed, giving finance departments almost limitless flexibility to shape their spending to suit the firm’s goals.

Unlike plastic cards, virtual cards can also be single-use: one payment, one card. This virtually eliminates the chance of payment fraud occurring from buyers sharing card details with suppliers. Each card that is created maintains the same direct link back to the firm’s central bank account for easy and transparent accounting.

Virtual cards also bring advantages to suppliers throughout the supply chain. They benefit from the same process efficiencies and, perhaps most importantly, they can improve their cash flow as well via instant settlement. Virtual cards from issuers like Barclays and Bank of America enable buyers to pay merchants upfront via a line of credit, meaning the supplier gets paid promptly and the buyer’s cashflow remains protected. Everyone wins.

Fear of the unknown

Or do they? As we’ve addressed, if something is unfamiliar, it can be scary. Supply chain businesses are understandably wary of the inevitable costs (in the short-term at least) of new systems and the associated implementation and training required to support it.

The key to overcoming this fear is to find a model that minimises disruption. Modern digital payment infrastructures are hosted in the cloud, which means you can effectively outsource the pain of setup, platform management and tech updates to the supplier. Given the critical role of digital payment systems, it also pays to work with a partner that enables you to speak to an experienced support expert whenever you may need it, resolving any processing issues promptly and putting merchants at ease before it risks harming supplier relationships.

Technology can also help build and maintain stronger relationships. Traditional payment methods, such as commercial credit card transactions, require suppliers to manually initiate the payment, ‘pulling’ money from the buyer. If the right people are not immediately available to progress the transaction, this all too often causes unnecessary delays to projects. Increasingly, firms are now turning to ‘push’ payments (straight-through processing) to simplify the process by paying for goods automatically.

As well as offering buyers increased control over their cash flow – enabling improved financial decision making – straight-through processing streamlines transactions by bypassing Accounts Payable (AP) altogether. This empowers companies to reallocate internal resources, reducing operational costs and eliminating the risk of human error. Advanced straight through processing solutions can also be integrated into existing card acceptance schemes, so there’s no big upheaval of the firm’s existing payment systems.

Faster, integrated payments

Ultimately, digital payment integration technologies don’t just enable process efficiencies, they also cut costs and ensure compliance with frameworks like the Prompt Payments Code. Perhaps more importantly, they create opportunity.

Digital disruption is inevitable, but the longer companies wait to change their systems, the more daunting it is going to seem. Companies are embracing digital to deliver numerous service improvements to clients and it’s important that the supply chain is not forgotten.

New levels of digital payment automation mean companies are no longer locked into working with small numbers of suppliers or doomed to encounter unnecessary supply chain delays.

All parties can benefit from digital payments, which brings buyers and suppliers closer together. And, perhaps most importantly, no-one need ever write another invoice again.