small business Resource Center

When it comes to Internet banking and conducting transactions online, consumers have been leading the march forward. However, this trend around the socialization of payments has not yet been fully embraced in the business-to-business (B2B) world.

In the business-to-consumer (B2C) marketplace, the decision about how to pay is primarily motivated by convenience and choice. Much of the innovation we’ve seen in this space is driven by consumer preferences. While the B2B environment has lagged behind this consumer trend, recent innovations in payment networks are enticing buyers and suppliers to connect more efficiently and in ways that are mutually beneficial. Admittedly, the check-driven processes that continue to dominate B2B payments stand in the way of achieving full automation, but momentum is building as businesses increasingly look for ways to reduce expenses and manage their working capital more effectively.

The overarching benefit of moving from paper to electronic payments in the B2B world is to gain improved treasury efficiency. But the challenge is in removing the friction, enabling seamless transmission of remittance information between buyers and suppliers. Unlike with B2C payments where consistent consumer information is seamlessly conveyed from one party to another, the exchange of data in the B2B environment is far more complex.

Take for example a single buyer that has relationships with hundreds of suppliers. Each supplier wants its data structured a little differently than the other, which in turn makes it difficult to automate data collection and process payments. By taking advantage of payment networks, organizations can remove the friction from payments. Payment networks create an ecosystem that enables information exchange between buyers and suppliers. The networks take responsibility for connecting with each organization in the manner they prefer, then transmitting the agreed upon level of rich remittance data. This eliminates the need for peer-to-peer connectivity, while enabling treasury to achieve critical cash flow benefits and reducing the overall cost of payments.

At Fifth Third Bank, we help customers integrate with payment networks to facilitate automation of payments and the transmission of rich remittance data between buyers and suppliers. Additionally, we guide clients to explore using other tools like dynamic discounting and more that can maximize the relationship between buyers and suppliers.

With any payment tool, whether it’s B2C or B2B, the success of the initiative is only as good as the extent of the adoption by consumer/suppliers. Failing to create awareness of new payment capabilities can doom a program right from the start. Developing and executing a strategic awareness campaign to educate suppliers on new payment tools and the benefits to using them is critical.

An important lesson learned from the consumer world is the importance of communicating the advantages and the value of new payment methods. In the case of payment networks, there may be various solutions available, but the overall value is reducing costs and creating efficiencies. Rather than simply informing suppliers about a new payment channel that they’re being asked to adopt, Treasury should institute an awareness campaign. Such a campaign should tell a compelling story about why this change is important to the buyer, as well as the value drivers for all participants in the payment network. Benefits might include the opportunity for quicker payments, better visibility into the remittance detail, an online portal that provides self-service options, and an overall reduction in payment exceptions.

A further benefit is increased payment predictability, which leads to improved analytics, providing greater insight into cash flow and enhanced cash forecasting.

In order to get the most value from payment networks, organizations should work closely with their bank. At Fifth Third Bank, we have extensive knowledge and experience working with the many different payment networks in the marketplace today. We are ideally positioned to help businesses develop an effective strategy that leverages the right network to meet Treasury objectives - whether it’s efficiency or working capital improvement. Serving as a trusted advisor, we can share industry best practices, tools and services that will help enable supplier enrollment through effective awareness campaigns. The socialization of payments offers an important B2B advantage that is increasingly hard to ignore.