There's a big difference in how fintech and banks approach payments. Banks tend to view business payments as a product to sell, while fintechs see them as a process to optimize. But what does that really mean?
Optimization is a term we often use when discussing costs or processes. It's relatively easy to optimize costs because they are easy to see and measure, making the business case straightforward. However, it's much harder to make the case for process optimization because the costs are often hidden and hard to measure. When we get really good at running a process, we may not realize how complicated it actually is. We might think that because something is working, we should keep doing it the same way. But this can mean that we overlook new technology that could radically change or even eliminate parts (or all) of the process.
So, how do you make the case for optimizing the B2B payment process? You need to evaluate three key areas:
Transactional costs
What does it cost to send an ACH or wire, or print and mail a check?
This cost includes transaction fees, check stock, envelopes, stamps, as well as any additional fees for delivering standard or upgraded remittance information, Positive Pay, returned checks, and research on lost or erroneous ACH payments.
Rebates
How much spend can you get on card, and what's that likely to yield in rebates?
Keep in mind that not all rebates are the same - they vary in terms of rules and payout percentages. Some don't kick in until you hit a certain threshold, while others pay out monthly, annually, or semi-annually. You must also consider the time value of money.
Some rebates pay less if you don't pay your balance off daily or weekly. There are also exceptions like Level 2 and 3 processing and large-ticket charges.
I recommend looking back at previous years to see what you actually earned versus what you remember from the sales pitch. There can be a big difference.
Operational efficiency
This is where you can really transform your business, but it can also be a rabbit hole.
Here are some things to consider when evaluating the payments process.
Enabling suppliers for electronic payments:
What is your go-to-market strategy?
How many vendors accept card or ACH?
Who collects, keys in, and updates the banking information?
How is it secured?
Creating payment files for transmission:
How many different file types must IT work with, and how often are they sending them?
How long does it take, and who does it?
Is the approval process built into the system or manual and paper-based?
Collecting physical signatures on checks:
How many people are involved?
How much time do they spend?
What is their hourly pay rate?
Sending out remittance information:
How is it delivered (mail, fax, email)?
How long does it take?
Who is responsible for it?
Reconciling payments:
How long does it take?
How many people are involved?
What is their hourly pay rate?
Resolving discrepancies:
How long does it take?
How many people are involved?
What is their hourly pay rate?
By evaluating these three key areas, you can make a strong case for optimizing your B2B payment process. However, it's important to keep in mind that optimization is an ongoing process - it's not a one-time fix. Technology is constantly evolving, and you should regularly reevaluate your processes to see if there are any new technologies or strategies that could further optimize your payment process.
So, what does this all mean for your business?
If you're still relying on traditional methods like check and wire payments, it might be time to consider switching to a more modern and efficient system. Fintechs are leading the way in this area, offering solutions like virtual card payments, automated clearing house (ACH) payments, and other electronic payment options that can significantly reduce transactional costs, increase rebates, and improve operational efficiency.
But you don’t need to take my word for it - do the research and see how these new payment technologies can benefit your business or set up a call with us and we can work through it together. The time and money you save could be well worth the effort.
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