How All-in-One Platforms Can Lower the Cost of SMB Payments

Through the past several decades, conceptually, B2B payments have been rather simple: Buyers received paper invoices, and suppliers got paper checks. Buyers want to hold on to cash as long as possible, while suppliers want funds in hand as soon as possible.

But now, in the midst of supply chain frictions, the imbalances inherent in B2B transactions are starkly illuminated. At the center of it all is payments choice, and struggles are apparent here, too. Payors may wish to pay by card — but suppliers balk at the fees. And so, the frictions continue.

In a recent On the Agenda conversation, Plastiq Chief Operating Officer Stoyan Kenderov, PayGround co-founder and CEO Drew Mercer and Sun Basket Vice President and Corporate Controller Todd Smith said that giving receivers payment choice — while simplifying how and when payors make transactions — can streamline supply chains and improve back office functions, too.

Tech-driven all-in-one platforms solve the mismatch between buyers and suppliers, the three execs told PYMNTS’ Karen Webster, and foster collaboration between enterprises where friction once reigned.

SMBs can benefit from modern payment acceptance that enables them to easily capture payments, especially those done by buyers as card payments — even if the supplier doesn’t accept cards.

As it stands right now, “Payors very often settle for whatever form of payments is asked of them,” Kenderov said.

The vendors themselves have, typically, decided to accept only ACH or wire transactions. Some vendors also accept cards — though that’s “a staggeringly low rate in B2B payments,” Kenderov said.

Complex Supply Chains

That mismatch can have serious negative ripple effects. Financial arrangements can be as complicated as the actual movement of goods, which in turn translates into payments hiccups and frictions that keep the supply chains themselves from operating smoothly.

Take, for example, Sun Basket, which operates as a subscription meal delivery service, with an emphasis on ready-to-heat meal kits. The firm has a myriad of suppliers and vendor relationships across every facet of operation, according to Smith.

“We’re basically shipping a box that is, in essence, a refrigerator that has to last for three days when it is out on the road,” Smith said.

Getting that meal from the order stage to the consumer’s doorstep involves vendors that include farmers, data scientists, marketing teams and packaging and delivery firms. Many of those vendors are ultra-small businesses who may not have traditional banking relationships in place.

These smaller vendors’ payment needs — namely, to be paid as quickly as possible (even if they don’t take cards) — may not mesh perfectly with Sun Basket’s own payment cycles, where transactions are done on a weekly basis.

“Some of these vendors will put us on ‘credit hold’ if payment is even a day late,” Smith said. That hold bars future orders from being processed or shipped, and can bring Sun Basket’s operations to a standstill.

Smith said an all-in-one payments solution, such as on offer from Plastiq, can offer a way to pay vendors via any payment method, eliminating credit holds.

As buyers and suppliers interact through that option, buyers pay a fee to use a vendor payment platform. They can defer payments for up to 100 days and gain points when using the card to pay bills. Plastiq pays the supplier either by check, ACH bank transfer or wire transfer.

Kenderov noted that back-office functions can become streamlined, which improves cash flow. Invoices can be captured automatically, through email forwarding; OCR eliminates errors, and instant payments help firms sidestep the cost of sending checks.

“We live in the 21st century,” Kenderov said, “and we have technology that can take of all the things that people have been doing through manual means.”

PayGround’s Mercer, whose firm strives to simplify health care payments through a platform model, allowing all stakeholders more payments choice, said the all-in-one approach streamlines payments to multiple providers.

In recent weeks, the company said it integrated Plastiq Connect into its PayGround healthcare payments mobile app, allowing patients to pay any healthcare provider through their preferred method. Those payment options can include bank accounts, a flexible spending account (FSA), a healthcare spending account (HSA) or via a credit card or debit card — all from one location inside the PayGround Digital Wallet.

Read more: PayGround Partners with Plastiq on Digital Wallet, Health Payments

Mercer said the availability of payments platforms and buyer/supplier choice helps improve collections on services rendered in an industry where providers typically write off 30% of bad debt.

PayGround has found that there is a significant segment within that 30% where patients are willing to pay a premium to pay the way they want to pay. Mercer said platform models give healthcare providers and systems the autonomy to create their own fee structures — including if they want to take on the additional costs or pass them on to patients. Many providers, he said, are willing to pay those additional costs rather than chase down collections.

“If you can meet that optionality with modernized convenience,” said Mercer of forward-thinking providers, “then that can take a huge bite out of that 30%.”

Finding the Hidden Costs

Smith noted that at a high level, the all-in-one model also makes hidden costs easier to attack and address. For example, Sun Basket spends tens of millions of dollars annually with a shipper that had agreed to accept card payments in order to avoid late fees tied to other forms of payments.

But that same vendor had been charging fees to Sun Basket’s logistics and operations teams — at higher rates, in fact, than would have accrued with fees for any late payments. The panelists said the transparency of the all-in-one model helps buyers pinpoint, and eliminate, those extra charges.

Education is Needed

Yet with all these advantages in place, panelists said that many firms — particularly SMBs — remain unaware of the benefits of the all-in-one model. Part of that is due to the firmly entrenched mindsets within B2B payments, Kenderov said — i.e., that the way it’s been done for so long will be the way in which it always will be done.

“If all we have is a horse,” said Kenderov, “it’s hard to imagine the benefits of the car.”

Payors and receivers have simply become habituated to friction.

Many smaller firms, he said,think they are indeed using a flexible solution when paying their vendors — namely, through credit cards or bank accounts. They remain somewhat in the dark about how they can accept payments across platforms regardless of how their buyer counterparts want to pay.

“The problem is not going to go away by itself,” Kenderov said. “It is unlikely that vendors are going to retool and rethink their payments operations, because they are mostly oblivious to the problem on the payor side.”

But there’s good news in the offing, said Kenderov — it’s early days yet in showing SMBs the ways and means in which payments and liquidity can be effectively managed through all-in-one platforms. SMBs will find they have much better working capital management as they realize they have access to solutions that combine all of the available cash with credit, wrapped into a payable instrument or payable instruments that can be utilized flexibly, he told Webster.

See also: NEW REPORT: All-in-One Payment Solutions Help SMBs Future-Proof Bottom Lines

Kenderov noted that the choice of which payments instrument to use for a particular vendor happens at the point of committing the payment. Whoever is making a payment may realize — perhaps a little too late — that their credit card has reached its limit or that they’ve exhausted cash in the checking accounts. It can a be huge operating headwind to put the payment on hold and to apply for additional credit while the vendor is awaiting payment.

The moment of choice for additional capital needs to happen at the moment of choice where the payment is made. Plastiq has recently integrated instant, short-term credit that can fund each transaction — a form of spot credit that happens instantly. That bespoke funding has been made possible only in the last few years through the availability of richer data on vendors, payors and risk underwriting.

Payments choice also has positive network effects, the panelists said.

Looking ahead, Kenderov said that vendors are warming up to the idea that receiving cards does not mean having to grapple with higher fees and difficult back-office reconciliation. For the first time, he said, many firms that have for decades decided not to (or have been unable to) accept card payments are finding ways to enable that optionality for their payors without suffering any additional inefficiencies or costs.

As Smith told Webster, “It becomes a process of discovery to open your mind to something you did not even know was possible because it was so deeply ingrained in the B2B culture.”