Commercial Payments International

‘Cash is king’ is a truism that has never been more true for businesses. So when business growth (or indeed survival) depends on smart working capital management, it’s dangerous to have cash tied up in inadequate payment processes. To better manage working capital, buyers typically try to extend their DPO and suppliers try to reduce the DSO. However without financing its just a zero sum game.

In previous articles I have spoken about how the industry can assist businesses in improving working capital from the payables side or the receivables side. Now by viewing this value chain holistically we can get the perspective of the SME who needs to constantly balance inflows and outflows to maintain working capital, although it is the unpredictability of this cash flow that is typically their biggest challenge.

Buyers are suppliers and suppliers are buyers, meaning every business is having to manage their own DPO/ DSO situation. The problem is that banks have traditionally treated both ends of the SME value chain quite separately. Although the current crisis has forced the business world to digitalise and automate its accounts payable and receivable processes very quickly, the gamut of new tools from providers look to improve either AP or AR.

These are typically product based solutions that are largely disconnected from each other, and do not recognise the integral relationship between payables and receivables for an SME. For all the talk about customer journeys, product based silos still exist in most financial institutions. Consider commercial card issuers and acquirers in the same bank that rarely talk to each other, except perhaps about supplier enablement for large corporate buyers, Or between commercial cards and receivables financing teams for that matter.

SMEs don’t want disconnected product solutions. They just want to get on and run their business and spend as little time as possible on financial matters. They need tools and services that work in unison, so the SME doesn’t have to stitch together a bunch of unrelated products from different vendors (or worse still the same vendor), each requiring an investment in training and maintenance. At the moment it seems that the cloud accounting providers are stealing a march on the banks in providing that end to end view, and with intelligent services and payment capabilities that could reduce the role of banks in the value chain in future.

Data analytics and AI are playing an increasingly important role in giving SMEs better visibility into what is going on, and to use intelligent services to help them stay in control. Intelligent services are a level above products, in addressing these needs. For example: ‘pay by card wherever possible to maximise working capital’; ‘predict what and when I need to buy based upon my recent card receivables’; predict my cash flow needs next month’ ‘provide me with payables financing based upon my real time receivables, not outdated accounts’.

Bringing together payables and receivables requires taking a perspective of the whole customer journey and then developing intelligent services that remove friction, and address pain points for the SME. Value will be created in these linkages, and as the cost of transaction processing becomes a race to the bottom, new revenue models will emerge based upon monetising these intelligent services.

For banks whose investment priorities are traditionally driven by regulation and maintaining legacy tech stacks, this will require a strategic change of emphasis. The shift to a customer-centric view of the value chain would open up so many new possibilities to help SMEs survive and thrive, whilst expanding bank revenues per customer and improving risk mitigation by looking through a holistic, real time customer lens.

How many banks today are viewing payables and receivables as two sides of the same coin within a customer journey? It is a change that is waiting to happen, and for SMEs once again caught in an economic crisis, but without the economic power of larger corporates, it can’t come soon enough.

Nicki Bisgaard is CEO of PayTech Group