Posted by Wayne Brown on 16 Dec 2015
Small business owners often struggle with managing un-integrated payment systems, payment reconciliation, and using technology to help manage their business. Many larger organizations, on the other hand, have successfully adopted EBPP (electronic bill presentment and payment) solutions. A key industry benefit of an electronic bill payment solution is that it can drive efficiencies and savings for both small business owners and their respective bill payment service providers. However, there remains a benefit gap when comparing EBPP solutions designed for consumer-to-business (c2b) payments versus business-to-business (b2b) payments.
Why are small businesses slow to adopt EBPP solutions? What can be done to close the benefit gap? Below are a few challenges that small business owners currently face with regards to adopting an electronic payment solution.
Challenge #1: The Struggle to Yield a Positive ROI Remains
The original purpose of electronic bill payment was to provide consumers the option to make a payment via an electronic channel as opposed to writing a check. Consumers had to be comfortable using the system in order for it to be efficient, so it was designed with them in mind. The problem is that many banks push businesses to adopt these consumer-oriented bill pay products even though they are not designed to handle the scale and complexity of b2b payments. Few business banking clients use electronic bill pay as a result, and many small businesses still make payments via checks.
In many cases, higher bill payment volumes can lead to increased costs for banks. The cost of a transaction depends on whether payments are settled electronically through ACH or through remotely created paper checks. ACH payments cost a bank about a few cents each, while checks can cost five times as much. However, with more than 27 million business billers in the U.S. alone, the sheer volume of potential billers makes it nearly impossible for a bank to build a comprehensive ACH directory on its own.
As the volume of monthly payments increases for a business, the likelihood of making payments to ACH-unlisted billers also increases. In this common situation, more payments have to be made by expensive paper checks, potentially significantly raising a bank’s overhead.
Challenge #2: The Small Business Product Needs to be Enhanced
The small business market is fragmented— businesses have demanding payment needs that cannot be met by current bill payment solutions. Many businesses have simply outgrown paper-based accounting ledgers and simple Excel spreadsheets to track their finances. Some use QuickBooks, NetSuite, Microsoft Dynamics GP, or another professional accounting system to track payables, partial payments, multiple invoices, and other transactions.
The objective of electronic bill payment is to increase efficiency, but when there is no integration between internal workflows and a payment system, small businesses resort to tedious and error-prone manual processes to key invoices and payments into accounting systems and bill payment applications. This process is unique to small business accounting. A bill payment solution for small business should offer simple integration with accounting and other applications, thereby streamlining operations for the business rather than complicating finances.
Challenge #3: Current Solutions Do Not Meet Business Objectives
A business-focused EBPP solution should automate the entire invoice-to-payment process using the proper workflows and controls to process invoices and make payments simple and intuitive, but most of today’s business bill payment solutions lack these basic capabilities. For example, growing companies may need to make partial payments or combine multiple invoices into a single payment and track the status of these payments. Remittance advice alleviates these problems and can help avoid confusing, time-consuming phone calls between a company and its vendors or partners. It also helps avoid the bigger problem of duplicate payments and the headache of having to correct them.
Another weakness of basic business bill payment solutions is their lack of workflow and documentation capabilities. Workflow issues are inconvenient— they can be costly due to inefficiencies and become a security risk. For example, companies may follow a dual-control regimen in which one employee generates a payment (e.g., the company accountant) but someone else approves it (e.g., the owner or controller), which can make the process slower and give rise to human error.
Challenge #4: As the Business Grows, the Bill Payment Solution Does Not
Supporting business banking clients as they grow seems like common sense, but most banks are sorely neglecting some of their most successful customers by failing to deliver payment solutions that deliver results when the small business grows. Unlike a large corporate client who gets serviced by a whole team or a consumer client who receives individualized attention, small businesses often receive the shortest end of the stick when it comes to banking services. Small business banking has become a focus for some banks, but many of them still struggle to provide products to meet the needs of evolving small businesses. While the smallest of companies may be able to get by with an imperfect bill payment solution built for consumers until they expand or their requirements change, many banks are still unable to provide robust b2b payment solutions for small businesses altogether.
Challenge #5: Solutions are Strategically Important, but Treated Tactically
Payments are important to any business, and cash flow is one of the most important strategic elements a small business must consider. Unfortunately, most banks treat payments tactically or as a complete afterthought, which can be even more detrimental to a small business. Proper bill payment solutions can drive efficiency into this pivotal financial function by improving workflows from invoice through payment, documenting the process, and providing the insight needed to better manage cash flow. This, in turn, can help a small business reduce operational costs and make sound financial decisions in the long term.
What can banks do to meet the payment needs of businesses?
Bill payment solutions are often not built for small business use. By funneling these businesses toward inadequate solutions built for consumers, banks risk losing money and making their clients unhappy. A more robust accounts payable and payment automation solution would greatly improve loyalty among business banking clients.
Banks should offer small businesses a solution that can satisfy current business needs and accommodate new requirements as the business grows. Small businesses need a bill payment solution that fits easily into existing workflows and integrates seamlessly with any related applications already in use. It should be a convenience that brings disparate elements of a payments process together rather than complicating matters further. Offering a comprehensive electronic bill presentment and payment solution that can fulfill these unique small business needs can be mutually beneficial for both banks and their business banking clients.