Virtualized B2B Payments: Poised To Kill The Paper Check — And The Plastic Card

For B2B payments, the pandemic may be the final nail in the coffin of the paper check — and the plastic commercial card, too.

To that end, in an interview with PYMNTS, Darren Blair, head of B2B payments at Conferma Pay, said virtual payments can alleviate pain points for buyers and suppliers that have grappled with high costs and slow processing tied to traditional, legacy and ultimately inefficient ways of transacting. The discussion came as the shift toward working from home has been a wholesale one — as surveyed by PYMNTS, 38 percent of individuals work full-time jobs from home; 45 percent work part-time from home.

As Blair told PYMNTS, the drive toward virtualizing payments has been gaining traction with the growth in remote working, because virtualization solves for three issues — those pain points, you might say — that are experienced by corporates in the present-day operating environment, regardless of the vertical in which they operate.

If not optimally managed, those issues impact working capital cycles, which in turn can negatively impact a firm’s very solvency (and perhaps even survival) as suppliers wait to get paid, or even onboarded into a buyer’s ecosystem. Those pain points center around cash flow, manual processes (where employees match invoice and payment data), and the management of suppliers.

Traditionally, when it comes to managing suppliers, Blair said, “there are several layers of approval, which increases preparation time and errors. Onboarding, for example, can take weeks.” Buyers have to build in the cost of supplier management into their businesses — and costs are especially acute when it comes to juggling what Blair termed “the long tail of infrequent, one-off suppliers.”

Streamlining Payments For Buyers And Suppliers Too

Drilling down into the payments themselves, virtualization helps level the playing field between buyers and suppliers, noted Blair. Traditionally, the benefits of card and check payments have resided on the buyer side of the equation at the expense of suppliers. With virtual payments, buyers gain from being able to increase their days payables outstanding by leveraging their credit lines on their commercial card products.

“The enhanced data they’re able to generate through virtualization simplifies reconciliation and gives them access to reporting, enabling them to better forecast future cash flows,” Blair explained. From a technical perspective, virtualization allows firms to integrate file-based and API-based functionality into their ERP infrastructure, procure-to-pay and treasury management platforms in an automated fashion. “This is a vast leap forward from the traditional payables processes,” said Blair.

With a nod toward suppliers, he said that accepting virtualized payments means they are able to reduce their days sales outstanding, as payments from their buyers are received more quickly. That helps to improve cash flow.

“Suppliers are also able to improve buyer relations by accommodating their preferred payment choice,” Blair said. Straight-through processing (STP) means suppliers are able to fully eliminate all manual touchpoints tied to reconciling payments, which optimizes AR resource utilization and reduces costs.

Even with the benefits of virtualization readily apparent, said Blair, many suppliers have been reluctant to embrace virtual cards. “Suppliers often don’t have the point-of-sale infrastructure to accept a card payment, even if they wanted to,” he pointed out.

These suppliers often opt for traditional payment methods, even paper-based payments, with higher acceptance costs — resulting in slower payment processing (which thus hurts working capital). To get more suppliers on board with virtualized payments, Blair said, “we talk a lot about virtualization on the issuing side. Really, it’s about also bringing the acquiring side into the equation via straight-through processing.”

He described STP as a seamless process designed specifically to enable accelerated payments to even more suppliers without manual hassle, while capturing all of the benefits associated with virtual payment.

Illustrating the process, Blair pointed to the hypothetical corporate buyer who uses their procure-to-pay platform to source and buy laptops from an office supply firm. The buyer uses a unique virtual card that is generated upon purchase approval. The office supply firm, through its STP connection, receives the funds from the virtual card directly into their commercial bank account of choice.

“Along with the associated purchase data, this virtualized process is much quicker and far more efficient and secure, while also improving the payment terms for both the corporate buyer and the office supplier,” said Blair.

Virtual accounts are dynamic, he explained, set for a specific invoice amount for a specific merchant and restricted by date, with no plastic involved. Buyer-initiated payments are delivered directly into the supplier’s bank account without any action required from the supplier. Security is improved, too, as suppliers don’t have to retain sensitive card information, which may make them vulnerable to cyberattacks.

This streamlined, secure, tech-enabled process sidesteps the frictions seen during the pandemic, where, as Blair said, many suppliers were unable to receive payments from buyers, as they couldn’t get to their brick-and-mortar offices to pick up checks.

The continued shift to work-from-home environments will only exacerbate those frictions, he noted. And in an effort to improve the ROI on payment operations, he said the pandemic may be the “final nail in the coffin” of the paper check — and the plastic card, too.

“The actual cost to produce a check over a virtualized card is roughly about $26 per transaction, which is quite significant. Overall paper-based manual workflows are costly to organizations. Now, 60 percent of C-level execs tell us they want to have stronger liquidity support from their critical suppliers. Thirty-nine percent of them are actually facing delayed payments from those customers,” he told PYMNTS, adding that “the best businesses are making payments a core strategic part of what they do.”