Digitizing accounting functions can improve efficiency, reduce costs, and increase accuracy for service-based companies. It can also provide valuable insights and analytics that can aid decision-making and help firms stay competitive in a rapidly evolving marketplace. In this post we will discuss the importance of digitizing B2B payments as it relates to digital transformation (DX) initiatives. First we will look at where digitizing payments fits into the DX efforts, then we will look at some of the benefits.
“...it’s building a strategy that supports continuous improvement and charts a path toward becoming the kind of future-ready org that raises the transformation standard for everyone else.”
In the past, B2B payments have been predominantly paper-based, involving invoices, checks, and wire transfers. However, as technology has advanced, digitizing B2B payments has become an increasingly popular option.
And even more recently, DX thought leaders are reshaping the digitization landscape. It’s no longer just about moving away from manual paper processes.
“Where DX once was about process improvement and optimization, it’s now about unlocking entirely new business models and enabling new ways of working. It’s reimagining everything about how organizations operate,” said a recent article by Phil Wittmer at Velosio (a Microsoft VAR).
Wittmer ads, “And – crucially, it’s building a strategy that supports continuous improvement and charts a path toward becoming the kind of future-ready org that raises the transformation standard for everyone else.”
A fully digitized payments process means the person in charge of running payments out of the company's ERP system just has to pick what they want to pay and click pay. Digitizing B2B payments basically includes the following:
While approvals may be considered a separate step in the accounts payable process, payments generally have to be approved. This makes automating approvals critical to fully digitizing payments.
Digitizing B2B payments may involve the use of any electronic payment methods including credit cards, digital wallets, bank transfers, and other electronic payment options.
Payments digitization is of course an important part of your accounting digitization initiative. Specifically, Payments falls under Accounts Payable digitalization. Some other key parts of accounting that can be digitized include:
Overall, digital transformation of accounting is of great importance to service based business models, and will almost definitely deliver benefits, allowing them to work more efficiently, make better decisions, and provide higher quality services to clients.
Because service based businesses often have few requirements around procurement or requisition, there are less barriers and friction to digitizing payments.
For many industries like manufacturing, business-to-business (B2B) payments are heavily PO driven. The accounts payable process for a manufacturing accountant involves reviewing purchase orders, receiving reports, and supplier invoices to ensure that they match before payment is made.
In contrast, the accounts payable process for a professional services business accountant involves reviewing invoices from vendors for services rendered and verifying the work was completed satisfactorily before payment is made. The focus is on ensuring that the services provided were properly delivered and less frequently on material goods received.
Because there are fewer obstructions and major benefits to be had, digitizing payments for service oriented companies is a no-brainer. This is especially true when you consider many service businesses have a large number of vendors and often expand through merger and acquisition. With this in mind, digital transformation is critical to managing the complex vendor payment ecosystem of growing service based businesses.
One of the primary benefits of digitizing B2B payments is improved speed and efficiency. Digital payments can be processed much faster than paper-based payments, allowing businesses to receive funds quickly and reduce the time spent on manual processes. Additionally, digital payments are more accurate and have fewer errors than manual processes, reducing the risk of financial losses, errors or fraud.
Arguably this is a subpoint of the previous note on efficiency gains, but it is worth calling out. As said above, service businesses often grow through acquisitions. Being able to centralize vendor management across disparate entities is key to this model and digitization makes it simple. It also enables scalability when expanding in a multi-location or franchise model.
Another benefit of digitizing B2B payments is increased security. Digital payments are more secure than paper-based payments because they are encrypted and protected by multiple layers of security measures. This reduces the risk of fraud and ensures that transactions are safe and secure.
Digitizing B2B payments also allows businesses to access valuable data and analytics. Digital payments are easily trackable and provide businesses with insights into their cash flow and financial performance. This information can be used to improve financial planning and forecasting, as well as to make data-driven business decisions. It also makes audits less headache-inducing when reporting is easily managed.
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Digital transformation is of growing importance for businesses in all sectors and industries. More than half of business leaders believe that digitization is the most important strategic initiative for their business, according to a recent survey by research firm Broadridge.
Survey respondents said DX spend grew from just 11% of their total IT budget, to 27% over the course of 2022.
"For many, digitalization is becoming an integral part of their change management and business innovation programs. These once-novel projects are now 'business as usual,'" said the Broadridge study.
Digitizing B2B payments is a key part of digital transformation in accounting for any business. Service based models will in particular find few obstructions and greater benefits. A DX undertaking offers many benefits for businesses, including increased speed and efficiency, improved security, and access to valuable data and analytics. As technology continues to advance, we can expect to see more businesses moving towards digital payments processing to improve their accounting efficiency and stay competitive in today's increasingly volatile business environment.
"...digitalization is becoming an integral part of their change management and business innovation programs. These once-novel projects are now 'business as usual'"