Earlier this year, I wrote about how global B2B payments were a hotbed of innovation and growth — but that they still had a way to go to catch up with the digitization and modernization of the past decade, and which is continuing to happen, within consumer payments. Now, with the coming of the new year, we’re seeing some of the lopsidedness disappear. Global B2B payments are getting the attention they deserve.
Following are four trends that are shaping this transformation and modernization in the B2B sector.
The adoption of accounts payable automation is accelerating. AP processes are still largely manual for many companies. According to a study by the Association of Finance Professionals, over 40% of B2B payment volumes in the U.S. are executed with paper checks. But things are changing.
AP automation is transforming many of the administrative (and error-prone) tasks that burden finance professionals. Since the pandemic, we’ve seen an acceleration in the adoption of AP automation, and we anticipate that trend will continue. When it comes to digitization and automation priorities within finance departments, accounts payable tops the list. Second is forecasting. Drivers of higher adoption include a greater need for back-office agility and throughput (another byproduct of the pandemic and related disruptions), concerns about fraud risk and data privacy, and a tech-savvy younger generation of finance professionals moving into leadership roles.
A record number of suppliers are using early payment. Sustained disruption and economic uncertainty are driving more suppliers to take advantage of early payment options like supply chain finance. Accelerated payment enables suppliers to be paid on average 95 days early, while providing buyers with an average increase in cash flow of more than $90M. Currently, 80% of invoices that have the option are being traded for early payment.
Certainty of payment allows businesses to more accurately forecast cash flow and make better informed business decisions. It also gives companies access to affordable short-term liquidity. Amid soaring inflation and interest rates — as well as pressure to pay down debt — early payment can be a vital part of the liquidity mix.
The size of the global B2B payments market is growing. The B2B payments market is exploding in size. According to research from Statista, global business payments volume was around $49 trillion in 2021. In 2023, it’s estimated to reach $54 trillion. That’s a healthy expansion, considering all that’s happened and will happen across the referenced timeframe: historically high inflation, multiple (and substantial) interest rate hikes, persistent supply chain disruptions and shortages, the war in Ukraine, and widespread economic volatility.
The global trade finance gap is widening, pushing companies to explore alternative finance options. From a recent Forbes article: “After a three-year rampage, the COVID-19 virus has left its mark on almost every corner of the world, scathing local businesses and economies with each uninvited visit. Although a large portion (79%) of bank leaders claimed in a 2021 survey that they didn’t reduce the amount of capital dedicated to supporting trade, the global trade finance gap is steadily widening nonetheless — and this is where alternative financing comes into play.”
Businesses of all sizes are feeling a liquidity crunch, but none more so than smaller suppliers. They’re the canaries in the coal mine — the businesses that take the first and hardest hit when economic conditions get rough, or when there’s a material fluctuation in demand. Heading into 2023, many of these businesses are battening down the hatches for tougher times ahead. But traditional measures may not be enough, or even available. Many of these companies can’t afford or aren’t qualified to take on additional debt. As such, they’re looking for non-debt alternatives like supply chain finance that shore up liquidity and provide financial headroom for a worsening economic climate.
As we close out 2022, the global B2B payments sector is on the precipice of historic transformation. Economic instability and inflation are driving up demand for low-cost liquidity alternatives. Advances in AP automation and easier access to early payment options are leading to improvements to businesses’ cash flows. In short, it’s become impossible to ignore the benefits of B2B payment and supplier portal modernization across the supply chain, from multinational buyers to local suppliers.
In 2023, expect to see more businesses invest in B2B supply chain payment transformation to streamline antiquated supplier vendor management, enhance supplier portal capabilities and payment processes, shore up working capital, and strengthen entire supply chains through a technology-enabled platform with the goal of delivering supplier financial health.
Gavin Cicchinelli is chief operating officer of PrimeRevenue.
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