The Transformation of Business Payments

The pandemic sped adoption of digital payments, but it also revolutionized supply chains.

The pandemic accelerated the digitization of business payments. Companies are seeing new cost and process efficiencies from their
digitization efforts, especially with T&E cards and vendor payments. But most exciting are the new possibilities that open up for more efficient supply chains when you have digital, connected, and intelligent business-payment ecosystems.

A lot of non-invoiced spending happens on travel-and-entertainment cards, also known as multicards. Use of these cards plummeted as Covid-related travel bans kicked in. Multi-card spend is back now, but what’s changed for good is that companies are looking for tighter controls.

Prior to remote and hybrid work, people talked more about budgets and spending controls face-to-face. There was more awareness of company policies and of oversight. That dialog, and that awareness, doesn’t happen as much any more, so companies want their policy controls programmed right into the card.

They want to use cards to empower remote employees to get what they need to do their jobs, with as little friction as possible. But they also want to make sure that the cards they’re issuing are used only for spending within company guidelines. That is entirely doable with today’s card-technology platforms.

Spending limits, geographical restrictions, and merchant category code designations are just some of the controls that can be implemented. To be sure, getting people to comply with T&E spending policies has always been a challenge. But automating policy controls keeps compliance front-and-center while speeding
up purchasing.

A Big Shift

In vendor payments, the predominance of paper checks is now eroding at an even faster pace than before. When the pandemic hit, companies that had centralized accounts-payable teams in one office were all of a sudden faced with creating a decentralized organizational structure. Instead of figuring out how to create a new check process or how to stand up electronic payments programs, many just decided to outsource the process.

That led to a big shift toward making more payments via the automated clearing house and virtual cards. As the number and size of ACH payments grow, one downside is an increase in ACH fraud. Outsourced payments companies have rigorous fraud-protection processes in place—typically quite a bit more rigorous than an individual company can have, because they’re doing it at scale.

Using virtual cards in an outsourced environment has even more benefits. Payment is nearly instantaneous, and fraud protection is part of the package. All cards are programmed for single swipe for an exact, invoiced amount. You get to hang on to your working capital longer. And customers get a rebate on their spending.

The biggest hurdle for these digital payment types has always been enablement. Historically, it’s been up to each business to approach its vendors, see who will take an ACH or card, and then get them set up.

To get to a high percentage of digital payments and a meaningful rebate, you had to go after every single vendor. And you had to keep doing it. According to internal Corpay data, vendor churn is 20%-25% annually. That’s a huge investment in labor that isn’t going to pay for itself for a very long time.

The idea of putting as much spend on cards as you can to max out your rebates is very simple. A lot of us do that as consumers, and it’s easy because the card-acceptance network for consumer purchases is now almost universal. But if you tried to do that with business spending, that network wasn’t there.

So payment-automation fintechs have spent the last decade building large networks of vendors enabled for ACH and card payments that customers can plug into. They immediately get the benefit of that network, which increases the number of vendors they can pay electronically. It also maximizes card spend and rebates from day one.

Large vendor networks with payments and data flowing through them open up some exciting new options for something the world has long needed: faster, more flexible, more accessible supply-chain financing.

This has always been a big lift in a paper-based world. You have to negotiate terms with the vendor, and then you need to get the money to them on time. Well, when you have a big vendor network, it becomes possible for vendors to display their discount and financing offers in the network’s portal.

Buyers can select the terms and send payment instantaneously via a virtual single swipe card, or schedule it to send just in time to meet the terms of the agreement.

Supply Chains’ Lifeblood

All of this can be extremely flexible. Neither party has to commit to a long-term program. The parties can opt in for a month or a week or just for one big invoice if they’re a little short of cash. As interest rates continue to rise, there’ll be more and more demand for something like this because companies are going to have a harder time getting access to affordable financial solutions.

Payments are the lifeblood of supply chains. When money moves efficiently, it helps supply chains move more efficiently. The pandemic accomplished in a year what might have taken a decade of sales and marketing effort. That’s a major evolution that reduces a big source of friction in the supply chain.

More digital payments and data flowing through these huge cloud-based vendor networks set the stage for the next evolution. Better supply-chain financing solutions are an obvious need.

As technology advances and we reach a tipping point where the majority of business payments is digital, it opens up possibilities to build adjacent products and services we haven’t even imagined yet.

—Sven Hinrichsen is senior vice president of strategy for Corpay Payables.