Andy Downman, Director at Adflex, discusses the current economic climate and its influence on digital payments, focusing on how B2B merchants can maintain their profit margins without raising the costs of their services. 

How is the current economic climate affecting B2B merchants?
As consumers prioritise managing their personal finances, merchant suppliers are faced with a similar challenge when balancing the books. Day-to-day costs, such as energy bills, continue to rise, putting profit margins under increasing pressure. Inflation is increasing the cost of materials and products, and as currencies weaken, the cost of doing business internationally is also rising. In summary, the current economic climate is far from ideal for B2B merchants. 

Rising costs mean profit margins are tightening. What can B2B merchants do to mitigate the impact, without affecting the quality of their services?
Historically, the answer for maintaining profit margins has been to raise prices. However, the current economic climate is affecting buyers just as much as suppliers. Those that raise prices significantly risk being perceived as unfair and out of touch with current socioeconomic conditions. Suppliers should look to other areas to maintain their profit margins, without pushing the entire cost burden onto their customers.  One strategy to address the profit margin dilemma is to look for where savings can be made internally, and this means tackling inefficiencies. One area prone to inefficiencies, particularly for B2B operations, is payments. Many suppliers still manage B2B payments through paper invoicing or BACS processes, an area susceptible to human error and hundreds of wasted hours. Modernising these processes can reduce costs and simultaneously improve cashflow – the lifeblood of every business.

How can suppliers address inefficiencies in B2B payments? What opportunities can this provide?
Many suppliers still use the same payment processes that they implemented several years – or even decades – ago. One common example of a dated process, which is still used by some B2B merchants, is collecting payments via mail order/telephone order (MOTO). This is where a business provides its card details over the phone, or via email, so the supplier can process the payment. Not only is this insecure, but it poses PCI-DSS compliance challenges for businesses, who are all required to keep private data safe. If a payment is late, further cost is pushed onto the supplier as they have to chase creditors. Within the current economic climate, these are costs they can ill-afford to incur on a regular basis.

The best way for a supplier to alleviate the pain of late payments is to make it as easy as possible for a buyer to make a payment. We are increasingly seeing merchants turn to new methods to achieve this. It is imperative for suppliers to accept commercial cards, which are becoming more popular among B2B buyers and can bring benefits to both parties –  buyers can extend their days payable outstanding (DPO), while minimising the supplier’s days sales outstanding (DSO), and decreasing the costs of cash collection. Commercial cards also allow merchants to digitise B2B payments to drive further efficiencies through technologies such as Payment Links or straight-through processing (STP).

Payment Links convert non-secure telephone payments into secure online transactions. The supplier simply sends a payment link to their buyer via email, text, or electronic invoice. The link takes the buyer to a secure hosted payment page where they can check out by card or utilise Click-to-Pay anytime, anywhere. Straight-through processing is a buyer-initiated process that automatically pushes a payment and remittance to the supplier using a commercial card at the point of order or post invoice. This removes manual processing for both parties and mitigates PCI-DSS burden. The transparent, real-time, reporting data offered by many digital payments platforms is key to informed business decision-making. It provides merchants with an up-to-date and clear view of cashflow for forecasting resources. Within today’s economic climate, this is vital to ensuring merchants can carry on as usual. In more prosperous times, this is how a merchant grows. We often hear that B2B payments are a future multi-trillion-pound opportunity for digitisation. We believe this is no longer true. The time for that opportunity is now.

Given the current economic context, what can B2B merchants expect in terms of preferred payment methods? Are digital payment methods the norm or are cash and cheques re-emerging?
While digital payment methods have usurped cash within the consumer payments ecosystem, B2B payments still have some catching up to do. Juniper Research recently determined that ’B2B payments have seen less implementation of new payment types, and account payable and receivable processes create an ecosystem that is difficult to manage.’ 

Juniper also predicts that by 2027, 35% of embedded payments’ revenue will be from the B2B segment, with B2B payments continuing its digital transformation journey. Technologies like Click-to-Pay and straight-through processing aim to make the buying and supplying process more streamlined, making instant purchases possible with just one click.

The current economic climate means businesses need smoother payments to establish and maintain trusted buyer-supplier relationships. Suppliers should be ready to accept the fastest, most convenient methods to get paid on time, to ensure regular cashflow into the business. Given the clear and immediate benefits suppliers can realise by turning B2B payments digital, it is unlikely for cash and cheques to make a resurgence. 

Having said this, some businesses may feel that now is not the time to prioritise a digital payments overhaul, which means that cash and cheques will remain part of the payment landscape for a while. However, using APIs makes it possible to read instructions from other services used for BACS, EDI, and cheque payments. This helps overcome the caution that is often associated with overhauling payments systems and implementing new ones.