I was leading a workshop recently about the best ways to improve the performance of your financial management and how to get more out of working capital. It was going well but I tried to increase the engagement in the room by asking the participant’s for help. I explained that I was going to write an article on the very same topic and wanted them to come up with a joke I could use in it. The joke had to be along the lines of ‘what’s the best way to…’
You’ll find it at the end of this piece and it relates to what I believe is the best way to improve your financial management.
I think there are benefits which organisations can achieve by developing relationships between buyers and suppliers. When people think about the way to make life simpler and enhance control, they default to things like e-invoicing or card payments. These have been a solid and dependable method for years but they are being overtaken with solutions which are cheaper, faster and quite simply better.
To start, lets take a look at some of the characteristics of both.
B2B card payments…can it exist in its current form?
There can be more than meets the eye when setting up to become a merchant and receive card payments. Firstly, the mere mechanics of getting everything started can be time consuming. There’s the simple stuff like getting a broadband line in place but the big job is the investment in integration with the supplier’s back office and stock systems. This is critical to enable level 3 tax data to flow back to the buyer’s card statement and can take considerable effort to get it up and running. Not only that, you’ll have the upfront fees for the card terminal and ongoing rental costs.
Next is the risk assessment. There can be lengthy contract negotiations with the acquirers and some industry sectors are seen as more risky which will attracts higher fees, larger minimum transaction volumes and penalties. You may be running a tight ship and see yourself as having a low credit risk but that’s no good if you’re in the wrong sector. And, if you are becoming a direct card accepting merchant it can cause problems with your banking covenants and impact your finance options and overdrafts. The result? It all adds up to higher fees, longer settlement terms and disruption to your existing arrangements.
The whole setup process can take three months and drain time and energy away from other projects. Plus, there is no guarantee that suppliers will use the card to pay.
So what are the options?
E-invoicing – the way forward? An alternative might be e-invoicing. It’s a recognised way to improve the efficiency of B2B payments and processing speed. It increases the efficiency, reduces errors, and means you have straight through processing. But there are things to keep in mind. For the buyer, it means getting an e-invoicing program set up in the hope that all suppliers will join. For the supplier, they may be asked to sign up to several different networks and it can seem like a big job they can do without. There’s a setup fee, charge per transaction and no guarantee that they will get paid on time.
There’s a new way to look at this problem… So, what are the alternatives? In the workshop I was outlining how technology has moved on and how some organisations have ripped up the usual approach and built a completely new process. There are several companies out there and we are part of that club.
Our payment system offers functionality which overcomes many of the problems with B2B payments. The first is the registration process and set up. This happens by email from the Invapay system. All you need to do is simply put in the contact details of your suppliers and an email is fired out to them. They add several bits of information into the Invapay portal, such as VAT, address and bank details. Their registration can happen in the time it takes to make and drink a cup of tea. This data powers our background checks on the company you’re dealing with. KYC and set up can happen faster and without the fuss – it’s a five minute process.
Plus, there are no set up fees or integration requirements. Everything is cloud-based, you only pay when you trade and everything can be configured by the user. You can even set up early settlement discounts which gives you the opportunity to lower your costs and enables suppliers to benefit from the technology, too. With lower fees and enhanced data in the form of level three transactions you can quickly achieve greater efficiency.
So, back to the workshop. I started by talking about the best way to improve the performance of your financial management and how to get more out of working capital. There’s no magic wand and no single solution. I believe it is all about breaking down the value chain, and each process within, into small parts. Then, you can look for ways to improve in each area, little by little. The sum of the incremental improvements quickly adds up and you will yield big savings and efficiency.
We think the B2B payments process is one of the areas where you can win big. If you’ve got this I’ll close with the joke. Apologies in advance…it’s not a classic but was the best fit with the theme.
Here it is… What’s the best way to carve wood? Whittle by whittle.
I’ll get my coat