Must-Know B2B Payments Trends For 2023 (With Original Data from PaymentWorks)

Here’s what we know about 2023 so far.

First, Pantone’s Color of the Year is Viva Magenta.

Second, Merriam-Webster’s Word of the year is gaslighting.

But what about 2023 B2B payments trends? We know those too.

What’s the state of payables today? To answer that question, we turned to Chris Ramsay, Executive Director of Strategic Payables at JP Morgan Chase, a PaymentWorks partner.

At our in-person event, Chris reviewed the major factors impacting vendor management teams.

What does “time value of money mean?” It’s a concept that impacts both vendors and buyers.

Essentially, it means that money has a different worth or value depending on when it is received or spent. A dollar received or invested today is worth more than the same dollar received or invested in the future because of things like inflation, high interest rates, instability in the global economy, etc.

In other words, money costs money. And that has contributed to many businesses living month-to-month.

Check out these stats from the JPMorgan Chase Institute:

• The average median amount of cash on hand for small businesses in the U.S. is 27 days.
• 25% of those small businesses have 13 days of cash on hand.
• In contrast, the top 25% of U.S. businesses have at least 62 cash buffer days.

Think about it this way: If one of your vendors is a small business and you’re not paying within the average median time of 27 days, they’re going to have to borrow money—which costs money—or find alternate sources of cash.

As a result, there is an operational impact of this delay. Your accounts payable (AP) team will spend valuable time fielding calls from vendors asking about the status of their payment.

Go ahead and ask your team how many of those calls or emails they get each week. Then multiply that by 5 minutes. Not pretty.

Focusing on the time value of money helps create financial health in your supply chain. We’ve seen what happens when the health of a supply chain declines. Businesses fold. Critical goods and services aren’t delivered. End users suffer.

Next, let’s look at supply chain disruption. This is particularly important in healthcare organizations, which rely on vendors to manufacture critical medical equipment. For example, if a small vendor can’t make payroll and they manufacture heart valves, that’s a problem.

During the pandemic, a lot of health systems funded the operations of smaller suppliers so that critical equipment could be made. This was a great temporary solution. However, it’s unsustainable to do long-term for every single line item.

In sum, we have to create financial health in the supply chain now.

Third, many organizations have a highly manual, ad hoc vendor management strategy. We’ve seen first hand how impossible it is for the vendor desk staff to keep up with new vendor onboarding and existing vendor changes demands–let alone the thousands of invoices they have to organize, vet, and pay.

Not to mention they’re also tasked with the CSI-level responsibility of identifying and avoiding the many fraudsters who are looking for openings in weak vendor management processes.

With job demands like these, many organizations are finding it hard to hire additional staff. The impossibility of keeping up with the pace, the stress of having to be 100% right 100% of the time, the tedious, manual tasks are definitely a deterrent to attracting new talent.

Finally, digital transformation is the inevitable move towards efficiency. This is a foundational requirement for vendor management teams.

All organizations need to start by digitizing and standardizing their vendor onboarding and management process.

Without structured automation, it will be impossible to impact payment types and terms at your organization. For example, you have to be able to approve invoices quickly. As Chris pointed out on our panel, “Everything begins with identity.”

Without automation at the foundation of your vendor relationship, tracking and adhering to standard payment terms will continue to be a challenge.

Additionally, you need to create standard payment terms, such as offering early payment in exchange for a benefit to your organization and the supplier.

When vendors need access to cash, you need to be able to adhere to the standard payment terms you set. However, adherence to payment terms can be difficult for organizations. It often requires cultural and structural shifts.

How can organizations begin to move towards digital transformation?

Look into your options for automated solutions. A platform (like PaymentWorks!) creates an identity, or foundation.

You can build off of that to achieve some of the efficiencies you need to standardize and measure the effectiveness of your vendor management.

The state of payables today is influenced by several key factors: the time value of money, supply chain disruption, human capital challenges, and the need for digital transformation.

First, understanding the time value of money is crucial as it affects both vendors and buyers, highlighting the importance of prompt payment to maintain financial health in the supply chain.

Second, supply chain disruption, especially in critical sectors like healthcare, emphasizes the need for long-term financial stability. Third, human capital challenges arise from manual vendor management processes and the burden of fraud prevention, making it difficult to attract new talent.

Fourth, digital transformation is essential to streamline vendor onboarding, standardize payment terms, and improve overall efficiency.

Finally, exploring automated solutions, such as PaymentWorks, can lay the foundation for efficient vendor management and drive digital transformation efforts.

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So far, we’ve listed the factors driving what’s happening in payables today:

• Emphasis on the time value of money
• Supply chain disruption
• Limited human capital
• Need for digital transformation

Now, let’s zoom in. We’re going to look at B2B payments trends based on what real-life vendor management teams are seeing on the ground.

The following trends are based on data from the PaymentWorks network of payers and payees.

Grace Mabie, who leads our product strategy and data analytics, presented the following data and the opportunities it reveals for payables teams.

Source: PaymentWorks network data

On the left hand side of the graph above, you can see the number of vendors who are opting into particular types of payment methods.

• First, ACH is the primary payment method that people are opting into at about 60%.
• Second, 30% of vendors, or 1 in 3, opt to receive a check. This is a somewhat surprising number considering that these vendors are registering through a digital form and are assumed to be fairly comfortable with technology and digital payments.
• Third, roughly 2% of vendors choose to receive payment via credit card. It’s important to note that not all payer offers a credit card option.  

The right hand side of the graph features the spend associated with those vendors.

• ACH vendors are far and away the majority of spend. More than 85% of AP spend goes to these vendors.
• The spend on check vendors is significantly lower at 8%. This finding indicates that these check payments are small, under $10K on average across our network.

• The percentage of credit card spend is smaller than the percentage of credit card vendors. That finding is expected because ACH spend is so massive that it deflates the rest of the data.

Checks are really inefficient.

The fact that 1 in 3 vendors choose to be paid via check, but checks make up less than 10% of AP spend is telling.

The check payments are likely very small, but they are costly resource-wise. Why?

First, staff have to come into the office to do check runs. Then, they either have to print them in-house or pay to have them printed. And finally, they have to pay to mail them. They’re spending so much time and money for such a small proportion to spend.

If check vendors converted to ACH or card, as many vendors have chosen, the savings would be dramatic.

As such, we recommend that payers move as many vendors away from check as they can.

Two factors are driving the rising time value of money. 

First, interest rates are high. Money costs money now. The time value of money is impactful for both vendors and buyers. 

Second, since Covid, supply chain disruptions are impacting businesses everywhere. It’s detrimental for businesses to move money early. 

Businesses want to know how they can hold onto their money until exactly the term, pay vendors on time, and also ensure that they get the time value of their money.

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Across our entire network on average, it takes a bit more time to approve ACH payments v. check payments. This may be because check payments are smaller and approved more quickly.

In pre-Covid times, check payments were sent out more quickly. Once the check is approved, it goes out the door quickly.

When Covid hit, checks began to move more slowly. It took time between the approval and sending out that check for it to be put in mail to be delivered to the vendor.

Vendors began to feel the tightness of having 27 days or less of working capital that many businesses experience. That slight delay could drive vendors to explore what could be a better approach to a payment.

To sum up, organizations are feeling the impact of money costing money.

Organizations are responding in a variety of ways. Some choose to delay payment approvals or deliveries. Some are having high-level conversations about budgeting and payment terms.

It’s safe to say that the time value of money becoming a serious consideration for vendor management teams.

The third B2B payments trend we identified is from the perspective of vendors who have onboarded through the PaymentWorks system opting into one payment method, then requested to receive payment via another method. 

Source: PaymentWorks network data

• Typically, 3-4% of vendors opt in for card payments either upon initial registration or change requests.
• Next, we see massive spikes in card adoption by vendors of 14%-16%. The first spike occurred during the initial Covid shutdown of March 2020, which could be related to the certainty in receiving card payment during financial hardship or times when you can’t come into the office to pick up a check. Similarly, in Dec 2020, the second major spike, correlates with the biggest hit of pandemic.
• Today, we see a dramatic upward slope of card adoption. This could be related to money costing money, time value of money, interest rates going up, and vendors wanting payments as quickly as possible.

Unsurprisingly, this dramatic increase in card adoption led to record-high dips in opt-ins for check payments.

• Typically, we see 30% of vendors requesting to receive checks. 
• Specifically, in February and March 2020, suddenly, people are not updating to ask for a check. Customers have told us that they’re not going into the office. Vendors aren’t going into offices to pick up their checks. Internal processes have changed. 

To sum up, B2B payments trends, such as the dramatic increase in card adoption and decrease in check adoption, show movement toward other faster, more certain payment methods. 

Card payment, for example, is extremely reliable because it’s backed by major banks. In other words, banks front organizations the money to pay their vendors. Additionally, cards allow for near immediate receipt of funds. 

Even though there’s a cost associated with being paid via card, vendors opt in because, we suspect, it provides stability during times of financial instability.

We have you covered from B2B payments trends to avoiding fraudulent payment attempts. Check out our resources below.

Tackling Accounts Payable Challenges: Effective Solutions

B2B Payments Fraud Fraud in Times of Chaos

Vendor Onboarding Trends in 2023: Prediction #1

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