Unpacking Digital Transformation in Payments: How to Create an Effective Payments Strategy

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Like many professionals in the financial sector, rarely a day goes by when there is no news about how “digital” is shifting the commercial landscape. Companies are innovating to enhance not only user experience, but internal processes. How can companies prioritize digital on both sides of the interaction between buyers and employees?

The Real Digital Transformation

Most of the time when I hear about “digital transformation,” it has to do with UX and how customers want to interact with a business website. But if a company wants to outpace competitors, they need to drill down into the details of what creates a meaningful interaction with their target customers. We all want the online experience to look pretty, but what about the back-office processes that go along with the payment experience?

The B2B payments experience is traditionally filled with pain points. In the U.S. alone, the use of paper checks in almost half of B2B transactions cost businesses over $550 billion in profit in 2018. Coupled with the rise of eCommerce transactions and the need for omni-channel payment options, most businesses are struggling to keep up with the digital needs of their business buyers. Internal processes for providing payment terms in B2B transactions are not digital-friendly, require personnel completing redundant tasks, and are not flexible enough to expand beyond a strategic buyer base.

Creating a scalable, digital experience for B2B buyers is key for companies in the next decade. Exploring their expectations can help with developing strategies for improving the end-to-end purchase experience.

In B2B transactions, relationships between sellers and their strategic buyers hinge on the payment experience. As more businesses take their catalogues online, frustration with the purchasing process can lead to cart abandonment and decreased share of wallet. The ability to pay with multiple options is crucial, with over 20% of B2B buyers citing lack of payment options as a key issue in online purchasing in the past year.

The challenges I raise are related to buyers raising their expectations, wanting B2C experiences in their B2B purchasing roles. For example, consumers have anywhere from 3 -5 payment options in almost every checkout (PayPal Credit, credit card, Klarna, etc.). They manage their individual cash flow based on the payment options available, the size of the purchase, and the desired payment terms. These types of options are not readily available for B2B purchases, and there is pressure in the market for digital, scalable solutions. 

Part of implementing payment terms option for business buyers is understanding the impact these relationships have on cash flow. Over 70% of companies that do not have an existing payments platform struggle with working capital. With day sales outstanding (DSO) increasing during the current downturn, companies are already re-assessing strategic buying relationships and the amount of capital deployed to provide terms to those buyers. This economic moment demonstrates that paper-based invoicing and traditional payment terms create significant challenges both for B2B companies and their buyers. 

We are currently in a time where digital engagement with buyers is key to stabilizing cash flow and optimizing brand experiences. Professionals across the payments sector should be assessing corporate clients in a way that balances the need for streamlining process with strategies for growth that will survive the current downturn. In conversations about cash flow and transforming internal processes, the key is focusing on strategic buying relationships and expanding access to payment options for B2B buyers beyond the traditional base. Rather than outright limiting payment terms or becoming more aggressive in collections efforts, ask these questions:

  • What is the average monthly accounts receivable for B2B?
  • How many B2B buyers currently transact? (it may also be helpful to include AMEX buyers, since those are more than likely a corporate purchase depending on the transaction size)
  • What is the average DSO across the B2B portfolio?

Optimizing the payments experience is an often-overlooked topic in digital transformation but can have a dramatic impact on a company’s success. The online catalogue and marketing campaigns will only go so far if there are cash flow issues or limited online payment options for B2B buyers.

Companies who strategically invest in digital transformation – from the front end UX through the payment experience – through the end of 2020 will be well positioned to win spend from the trillion-dollar B2B eCommerce market over the next five years. If you are a company with a strong B2B strategy, a company entering the B2B market for the first time, or consulting with companies trying to strategize for B2B, consider the buyers’ payment experience and how to increase their engagement and spend.

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