Digital Transformation » Systems & Software » Crunch time: it’s time for B2B invoices to be paid instantly

Paper cheques were once one of the most widely used payment methods for B2C transactions before they were replaced by credit cards. Unlike cheques, credit cards provide merchants with the certainty of receiving payments and are much faster and easier to process.

This improvement has enabled faster growth for enterprises, created new opportunities for trade and heightened productivity like never before. Nowadays consumers pay for goods and services with the tap of a card or the touch of a screen and money transfers instantly.

Business to business (B2B) payment systems, however, have not experienced the same transformation, and lag well behind in terms of speed, certainty and efficiency. Instead of instantaneous transfer of money, many suppliers are left waiting 60, 90, 120 days or longer to get paid.

Artificial intelligence technology could be to B2B what the contactless credit card was to B2C. It will unlock billions of pounds of value currently tied up in slow payments and transform the $127 trillion market in global B2B commerce.

Payment terms

In the B2B space, many of the inconveniences of paper cheques continue to plague businesses: lost time, wasted effort, and lack of certainty. B2B commerce relies on the use of payment terms, where goods or services are delivered but paid for at a later date. Imagine walking out of Starbucks with a coffee and saying, “I’ll pay you in three months”.  This is what currently happens in B2B.

This inefficiency is most extreme with sales from small suppliers to large buyers, where there is a very significant difference in the cost of capital and the negotiating position of each party. It is in neither party’s interest to participate in an inefficient transaction.

At the heart of it, this echoes the pains of paper cheques for merchants – with no convenient alternative to turn to.

The impact of slow payments

Slow payments are the single biggest risk to small suppliers’ business. In the UK alone, they affect 77% of small suppliers and cause 50,000 to close every year. The problem is global and getting worse. Recent research by Atradius shows the average payment duration in the Americas has declined to 63 days from 61 days in 2017 and that 90% of businesses frequently experience slow payments.

Businesses are being starved of cash flow, forcing them to take out expensive financing (with typically 20%+ APRs). Smaller enterprises suffer from the uncertainty of future payments, wasting resource and mental space chasing invoices and managing expenses.

Larger buyers suffer from higher costs as suppliers are forced to incorporate the extra costs of financing into the pricing of their service or product.

AI powered payment decisions as a solution?

It doesn’t have to be this way. Artificial intelligence (AI) is about to give B2B its credit card moment, making transactions faster and more efficient.

New predictive technologies are transforming B2B payments profoundly. Merchants who sell to other businesses, and currently have to suffer a great deal of uncertainty, administration and delay, can now have the certainty of receiving payments. This is without the hassle, delay and paperwork.

Currently, B2B payment systems finance an individual supplier based on their ability to collect payments from their individual clients. This is fragmented, expensive to service and risky.

Using AI, we can flip this model, so that the system can instead finance based on a large buyers’ ability to settle with their tens of thousands of suppliers. The risk assessment is shifted away from the supplier’s credit standing to focus instead on the quality of the claim against the multinational buyer. This is centralised, cheap and involves far less risk.

Many large corporate buyers currently need to check thousands of invoices everyday by hand to ensure they are correct which is time consuming, expensive money and vulnerable to human error.

AI technology on the other hand, is capable of accurately checking millions of invoices before a human worker has finished making their morning cup of coffee. This enables risk to be identified, measured and controlled.

AI can analyse hundreds of millions of data points to create a score on how likely the buyer is going to pay for each transaction. The risk can then be assessed and scored instantly at the point the buyer receives the invoice or the suppliers accepts the purchase order.

By providing a minimum threshold for the score, the potentially problematic invoices can be flagged and removed, reducing risk. Those that meet the minimum threshold, the vast majority, can then be paid instantly by funders, without having to wait for the buyer’s approval of the invoice.

Terms of 30, 60, 90 or 120 days, which suffocate small businesses, will become a thing of the past with the growing popularity of early and instant pay solutions.

Transforming B2B

It is time for the payment systems to evolve once again, driven by innovation in finance and technology, to the benefit of businesses large and small.

Today’s machine learning tools mean that every supplier can be paid cash as soon as it delivers an invoice – just like in B2C. The largest corporates now have the tools and incentives to make this a reality.

Like in the case of credit cards, we know this transformation in B2B will not occur overnight, at once, or without resistance. But we also know that with the right approach, it is indeed possible, and with the right innovation, it will be tremendously powerful.