The pandemic accelerated the digitization of business-to-business payments. We saw more companies moving off paper checks and paying more vendors electronically. We also saw wider adoption of technically advanced travel and expense cards and payment outsourcing. Companies pay their vendors in more efficient digital ways, which opens up new possibilities for more efficient supply chains.
Many non-invoiced spending happens on travel and expense cards, also known as multi-cards. Since COVID hit, companies have been looking for tighter controls. They want to empower remote employees to get what they need to do their jobs, and they don’t want to see spending abuses.
Before remote and hybrid work, people talked more about spending controls face to face. That dialog doesn’t happen as much anymore, so companies want their policy controls programmed into the card. That is entirely doable with today’s card technology platforms, and it helps reduce friction and spending delays that ultimately disrupt supply chains.
In vendor payments, the pandemic led to a big shift toward making more payments by Automated Clearing House and virtual cards. The idea of spending as much on cards as possible to max out your rebates is very simple. Many of us do that as consumers, and it’s easy because the card acceptance network for consumer purchases is huge.
But for invoiced purchases, companies had the rigor to go after every single vendor. And they had to keep at it — according to internal Corpay data, vendor churn is 20 percent to 25 percent annually. That’s a huge investment in labor that isn’t going to pay for itself for a very long time.
Now, financial technology firms in the market have huge cloud vendor networks that customers can plug right into. That increases the number of vendors companies can pay by Automated Clearing House or card and maximizes card rebates from day one.
One downside of more Automated Clearing House payments has been an increase in fraud, something that companies that were previously check-based aren’t prepared to deal with. Business-to-business payment processors have rigorous fraud protection processes in place — typically quite a bit more rigorous than an individual company, because they’re doing it at scale. This is driving increased interest in outsourcing payments entirely. It takes a tremendous burden off accounts payable departments.
Using virtual cards in an outsourced, automated environment has even more benefits. Payment is nearly instantaneous, so you get to hang on to your working capital for longer. Fraud protection is part of the package because cards are programmed for a single swipe to a named vendor for an exact invoiced amount.
Those are the major efficiency gains we’ve seen during COVID.
The underlying driver of future gains is the mass adoption of these large business-to-business vendor networks. A big network with payments and data flowing through it opens up some exciting possibilities for something the world has long needed: more accessible supply chain financing.
This has always been a big lift in a paper-based world. You have to negotiate terms with the vendor and then pay them on time. But when you have a very big vendor network, vendors can display their discounts and financing offers in the portal. Buyers can select the terms they want and send or schedule payment to meet the terms of the agreement.
Invoice financing also becomes much faster and easier. If you know an invoice is approved to pay, which the network does, there’s practically no risk to making a financing offer to that vendor. All the vendor has to do is opt-in.
All of this can be extremely flexible. Vendors can opt-in for a month or a week or just for one big invoice. As interest rates continue to rise, there’ll be more demand for this because companies will have a harder time getting access to affordable financial solutions.
Payments are the lifeblood of supply chains. When money moves efficiently, it helps supply chains move more efficiently. The pandemic spurred more digital payments, and this major evolution reduced a big source of friction in the supply chain.
That sets the stage for the next evolution. As technology advances and we reach a tipping point where the majority of business payments flow through digital networks, it opens up all possibilities for supply chain finance and other adjacent products and services we haven’t even imagined yet.
