The Multibillion-Dollar Problem Of B2B Payments Friction

B2B payments is at the center of efforts to innovate by FinTechs, banks and others, but corporates’ business-to-business payment processes remain complex, erroneous and a deterrent to growth.

That’s according to new research from Optal, published earlier this month, which commissioned Davies Hickman to survey more than 100 corporate finance professionals in the U.K. While the small sample size prevented analysts from making broader conclusions about the B2B payments space overall, the report found evidence that companies with more than 1,000 employees were struggling to upgrade and improve their B2B payments operations.

Contributing to this challenge was the vast supplier base with which these businesses work: Half of survey respondents said they work with more than 500 vendors, while about a third said they work with more than 2,000 on a regular basis.

For more than two-fifths of professionals surveyed, their organizations received more than 2,000 invoices every month.

There was a lot of money at stake for these firms too. According to Optal’s report, more than a third spent as much as $342 million every month on supplier payments.

Globalization of companies’ supplier base was also a factor in the complexities of their B2B payments processes, analysts noted, with most respondents reporting that foreign exchange payments were involved in up to a fifth of their monthly B2B payments.

The vast majority (91 percent) said they used the Bacs system to make their B2B payments, though half said they used SWIFT more than four times a month. Nearly the same amount (45 percent) said they used paper checks, and more than half (52 percent) used the Faster Payments scheme.

Where Problems Persist

While use of newer payment schemes and infrastructure like SWIFT and Faster Payments is strong, the survey found multiple areas in companies’ B2B payments processes that were creating major issues.

“Finance experts in some of the U.K.’s top organizations told us they choose payment methods for reasons of cost, ease, speed and security,” said Optal General Manager, Europe, Andrew Downes in a statement. “Yet this research clearly shows current processes for B2B transactions are letting them down.”

More than a third of survey respondents said as much as 40 percent of their supplier invoices involved a dispute, a supplier chasing money or other issues that required manual intervention and interaction. Nearly half said these interactions involved between one and five employees.

Worse, 16 percent of survey respondents said this interaction required more than 36 people to get involved — a figure, said Optal, that highlighted the wasted time and manpower associated with the need for manual invoice and B2B payment processes.

Every single survey respondent in the telecoms, oil & gas, travel & leisure, pharmaceuticals & biotech and personal goods industries said they accidentally misdirected or duplicated a supplier payment. Nearly half (49 percent) of survey respondents overall said they made this kind of supplier payment mistake “on occasion.”

According to Downes, this high failure rate has major implications both within and outside the buying organization.

“The high failure rate on first-time payment of invoices not only impacts the productivity of finance teams and hits the bottom line hard, but it can have a detrimental effect on supplier relationships,” he said.

On average, the value of a misdirected supplier payment was more than $4 million a year. More than $55 billion in supplier payments were paid late, a threat to companies’ reputations and relationships with their vendor base.

Companies spent a combined $68.8 million on reconciliation processes, with a tenth of survey respondents deploying 50 or more employees to this area of operations.

Downes said companies should consider single-use Virtual Account Numbers that can “strip away cost, complexity and human error to streamline payments and provide a solid foundation for business growth.”