According to DBS, the B2B payments market in Singapore is expected to grow at a CAGR (Compound Annual Growth Rate) of 5% over the next few years. Yet, the B2B payment cycle is still as inefficient as ever, stuck in its dated and manual processes, and not matching up to its massive growth potential.
Most times, manual processes give rise to many challenges for finance teams, especially those who work directly with the CFO office – where they could face multiple backlogs or bottlenecks in their payments. Delays like this could be detrimental to a business and its relationship with key stakeholders, such as its vendors, suppliers or external partners.
In this article, we will bring you through a typical B2B payment cycle and highlight the possible pain points that arise in between and why AP solutions are essential to get rid of them altogether. Read on to find out more.
A Typical B2B Payment Cycle in Singapore
Try and imagine yourself as the buyer in this situation.
Purchase intent is initiated
This is where a business relationship between a buyer and a seller starts. The buyer, who requires a product or service from the seller, begins the conversation through communication channels with an intention to purchase. This intent can be accompanied with a physical purchase order that confirms the purchase intention.
Invoice is created by the seller
After the deal is finalised, the seller would create an invoice before the delivery that contains many details such as:
- the seller’s information
- invoice number
- invoice date
- payment terms
- payment amount
- description of the product or service,
- the buyer’s information, and
- any additional information needed.
These invoices mostly come in the form of paper, either handwritten or typed, and sent through emails, mails or messaging platforms– which require a follow-up on the buyer’s end. If there is incomplete information from either party, back-and-forth communication may also be needed.
There is the possibility of fraud from scammers who provide fake account details, or even from employees who enter their own bank account numbers.
Invoice is received by the buyer
Once the buyer receives the invoice, it will have to be run through and reviewed by its finance team. This is done by scanning the invoice or manually entering those details into an accounting system. A copy of the invoice is also typically kept in a physical file or filing cabinet for safekeeping.
Approval by key decision makers in the CFO office
Once the invoice is recorded and filed, it will be sent and processed by those who are authorised to make key approval decisions on behalf of the company.
These can comprise anywhere from 2 - 4 employees, depending on the size of the business. Approvers are notified and will be required to inform whether it has been approved.
Buyer’s payment is made to the seller
When the approval workflow is completed (i.e. when the invoice has been approved by all approvers), the buyer can then make the payment immediately or schedule it accordingly.
This is done according to the seller's payment terms, but it is usually done by cash or paper cheques. There are other common methods used in B2B payments too, which you can check out here if you’re curious. Time is then spent making the payment.
Record the transaction and payment
Once payment has been made, the person overseeing the payment process will need to record and note down the transaction. Eventually, it will be manually reconciled for accounting during the closing period by the buyer’s accountants.
Pain points faced in the B2B Payment Cycle
Now that you’ve experienced the cycle first-hand, let's take a look at the pain points buyers and sellers would undoubtedly come across in those situations.
Heavy reliance on manual processes
If you noticed, most of the steps in the B2B payment cycle require heavy reliance on manual processes. Starting from manual data entry, to manual approvals, to manual accounting reconciliation, the list is endless. Finance teams have to spend a lot of time gathering the right information from all different sources, which strains their workflow.
Lack of visibility
Throughout the payment cycle, there is little to no visibility over how, when, and why the money is being paid to the seller. Every role that is involved in the process, be it the accountant, the finance personnel or even an approving manager– usually would not know when the invoice comes in, when it has been keyed in, or when it needs to be approved.
This is because they are unable to track these happenings or be informed in real-time once any decision in the payment cycle has been made. Additionally, keeping hard copies of the invoices presents the risk of lost invoices and creates storage hassle, making it difficult to view all invoices all at once.
Waste of time and focus
Following the typical process of B2B payments, it can get very laborious as it requires multiple layers of processing and approval. In some unforeseen circumstances, invoices may also get lost in the audit trail unknowingly.
Without the invoice, it wouldn’t present a need to go through approval or accounting reconciliation because those involved in these processes would not have known about its existence in the first place!
Should the seller inquire about the payment status, only then would it present a need to search for the missing invoice– taking time and focus away from more important tasks that can greatly contribute to a company’s success.
The huge amount of time and the possibility of lost invoices may cause payment delays to sellers. At times, the buyer can be imposed with hefty fees or even face lawsuits due to the late payment.
Therefore, this would cause a heavy strain on the relationship between the buyer and the seller, and create a bad reputation in the eyes of other potential sellers or even customers. The buyer could also miss the opportunity to leverage potential early payment discounts.
Human errors are almost always inevitable in the B2B payments cycle. Especially when invoice documentation and data entry are involved, mistakes such as typos or misreading information are nearly impossible to avoid.
In some cases where large amounts of money are at stake, those mistakes can potentially make or break a business’ finances. It can be a major inconvenience to rectify those, particularly when a wrongful payment amount has been made.
AP solutions for B2B Payments
Without a doubt, the aforementioned pain points are getting more prevalent as a business grows. Regardless of sector or company size, the pain points ultimately revolve around manual dependency and a lack of visibility across business expenses.
Thankfully and rightfully so, it is becoming a rising trend in the B2B payments landscape to include automation to make the payment experience better for both buyers and sellers. Not to mention, businesses will save lots of time and money– allowing them to focus on other aspects to grow their business further. Furthermore, automation still ensures that the company’s checks and balances are in order, which ultimately maintains control over the business payables.
Despite that, the overall penetration of AP solutions is still shockingly low. However, this means it is a great opportunity for businesses to act first and adopt an AP solution to gain a first-mover advantage.
Eliminate Pain Points with Spenmo
If you’re a finance professional reading this article, or someone in an organisation that is still stuck in the cycle of manual processes, it’s time you start thinking about AP solutions to streamline your business workflow and remove those pain points.
Spenmo is an all-in-one AP software for all your business needs. With an integrated dashboard, automated bill payments, custom approval workflows, and accounting reconciliation, stay on top of your B2B payments in real-time and eliminate any trace of human errors.
Our vision is to help you gain visibility, comfort, and control over how, when, and why money is leaving your organisation. Book a demo with us today!