e-Payments: The Next Big Thing in B2B e-Commerce

Vice President, Marketing, Basware, Inc.

Following is the fifth blog in a series based on a discussion between Bob Cohen, Basware VP North America and Andrew Bartolini, Chief Research Officer, Ardent Partners and author of the recently published study e-Payables 2014: The Quest.  During their conversation, a range of purchase-to-pay trends were discussed, including e-invoicing, business networks and social, mobile and cloud enablement. This blog focuses on e-payments.  

Bob Cohen: What is spurring market interest in e-payments?  

Andrew Bartolini: There’s a huge need for e-payment solutions in the market.  The cost of mailing a check is significantly greater than the cost of making an electronic payment.  Many large enterprises and mid-market enterprises are recognizing that they need to transform how they pay their suppliers.  They want effective platforms that allow payments to be made in a safe and low-cost way as well as provide clear remittance information to the supplier. The suppliers benefit, as well, from gaining much better visibility into the timing of their receipt of funds. We expect electronic payments to be very hot in 2014 and well into 2015 and 2016.

Bob Cohen: What is the current state of supply chain financing?

Andrew Bartolini: Supply chain finance has been a very interesting and talked-about area for a good number of years.  The reams of paper invoices that are coming in, and the manual checks that are being cut and mailed out are impeding  trading partners, buyers and suppliers from having the visibility to understand the status of an invoice and the status of  a potential payment.  The more companies adopt e-payables solutions—which at Ardent Partners we refer to as those that automate all or part of the accounts payable process, including e-invoicing, e-payment, work flow, and document management solutions – the more companies can make decisions with visibility and insight into how they can and should pay their suppliers for maximum benefit.  This visibility also enables suppliers to determine how and when to offer discounts for receiving early payments.
Bob Cohen: What are the pros and cons of current supply chain financing approaches?

Andrew Bartolini: We’re now at a point where we can actually have a conversation about the pros and cons of supply chain finance  in the early stages.  The pros are that business partners can make financial decisions as to how payments are made and received, based upon their individual costs of capital and the benefits that they may gain from doing the transaction at a time that differs from what was agreed upon in the contract.  Just opening up that conversation allows companies to find opportunities to drive real value.  What remains to be seen is how quickly these strategies will be adopted and how prevalent they will become.  There are  a lot of third-party financing, or non-traditional sources of money outside of banks and other financial institutions that are driving value for both sides of the equation.  They are building these solutions, but we’ll have to see if the participants will come.

Bob Cohen:   What are the downsides of traditional financial approaches, like factoring?

Andrew Bartolini:  If a company is factoring its receivables, it’s doing so at a relatively high cost.  There’s a high interest rate for that loan.  It’s like the payday lenders that you see on street corners in cities.  They’re going to give you the short-term loan to get you to pay day, but there’s a pretty big fee or stipend. It’s the same for suppliers.  Yet for suppliers that are effectively factoring their receivables, the presumption is they’ve done an analysis, and they’ve determined that is their best mechanism for drawing funds more immediately.  

If you’re a large buyer working with smaller suppliers, ideally you’re not putting them in a situation that squeezes their cash to support your operations, although this happens all the time. In an ideal world, the timing of payments is taken care of at the front end of the process when the contracts are negotiated, but things change. Business cycles are less predictable and decisions need to be made much faster. The opportunity for supply chain financing is interesting and it has captured a huge amount of interest from investors and tech companies alike. But the reality is that there are some unknowns as to market demand. Some new technologies are enabling companies more visibility, time, and context to take advantage of these opportunities. But, this market is in its early stages so we'll have to see what happens over the next two years. My firm will be tracking this.

Bob Cohen: What the next big thing that you’re expecting in e-commerce?

Andrew Bartolini: The area of e-payments is really hot, and we expect to see a shift over the next couple of years, specifically with new products, new players, and streamlined processes and innovation to create win-win opportunities for both trading partners, buyers and sellers alike.

To download the complete Ardent Partners’ report, e-Payables 2014: The Quest, click here »