The Benefits of Faster B2B Payments

Much of the discussion with faster payments centers around person-to-person payments and bill payments, the latter of which will help consumers avoid late fees when making payments right before deadline.

Beyond the advantages of faster payments on the consumer side, there is huge potential for B2B real-time payments.

Our Senior Vice President of Innovation & Strategy, Kevin Olsen (also known as the Payments Professor) recently discussed faster B2B payments use cases and how to identify the ones with the most potential for your organization with Dr. Angela Murphy in a recent Payments Podium podcast. Let’s recap some of the highlights.

Cost Savings
There is always a cost associated with processing a payment, be it a check, an ACH wire or a payment card, for both the sender and the recipient. Despite the availability of ACH and wire payments, more than 60% of B2B payments are still made with paper checks, a cumbersome and slow process. It costs money for someone to put a paper check in the envelope, for someone to send the check somewhere, for someone to open the check, for someone to enter the check information into an accounting system and for someone to deposit it.  

All told, the total cost of a paper check runs anywhere between $7 and $35, depending on the industry. Depending on the number of checks written, the total cost can be substantial. Converting these checks to digital payments represents significant savings for organizations. Financial institutions can help their business clients make the switch to more efficient transaction processes, such as real-time payments. 

Fraud Mitigation
As payments move faster, many are concerned about what this means for fraud mitigation. How can fraud be prevented in time? However, there’s a mechanism called Request for Payment (RFP) that can help address this. An RFP is essentially an invoice, with all of the data needed for a payment, such as account details, amount due, and even stock keeping units(SKU). These pieces of information serve as critical Know Your Customer (KYC)details. By opting for Request for Payment (RFP) rather than the older invoice-and-check method, you can mitigate the risk of fraud and streamline the payment process.  

Granular Payment Data
Unlike a paper check, using the RFP with faster payments provides critical granular detail beyond the amount of the payment amount itself. This not only helps with KYC compliance and fraud mitigation, it also offers unprecedented visibility into purchasing behavior.  

Take the example of a company that supplies pieces to a large electronics manufacturer. The supplier and the electronics manufacturer both need to have SKU-level data about the inventory purchased, not just the invoice number and purchase number. All of that data can then be automatically ingested into a company’s different systems without the need for human data entry. 

ISO 20022
With legacy systems, reconciling a payment within a system of record involves a human behind a screen typing in the information. Manual reconciliation is an expensive, slow, cumbersome – and for the person involved– boring process.  

This can be streamlined with today’s ISO 20022 standard for exchanging electronic messages. It uses XML syntax and offers structured, rich data, enabling you to employ Natural Language Processing (NLP) to contextualize and understand the different fields and data in the document, then use an API to pull that detail and put it in into the system of record. NLP, APIs and artificial intelligence enable the entire reconciliation process to be completed much more swiftly and accurately than a human could. 

Faster payments enables companies to reduce their accounts payments and receivables expenses, streamline processing, and better mitigate fraud. This level of digital transformation offers a competitive advantage and the sooner organizations makes the transition, the sooner they can enjoy the benefits.