Effective B2B cash management is crucial for companies to maintain financial stability and drive growth. To gain insight into this critical area, we spoke with industry expert Ernie Humphrey, CTP, Treasury Webinars, about the latest trends and best practices in B2B cash management.
The Economics of Payment Types
One of the fundamental aspects of B2B cash management is understanding the economics behind different payment types. "There are different processing costs based on payment type,” Humprey said. “The payment cost for writing a check is different than for an ACH, which is different than a card payment." This understanding is crucial for companies to make informed decisions about their payment strategies.
Humphrey emphasizes the importance of timing in payments: "The timing of the payment matters in terms of your working capital and your cash allocation and the opportunity cost to your company," By carefully considering both the type and timing of payments, businesses can optimize their cash flow and working capital management.
Breaking Down Silos for Better Collaboration
A significant challenge in B2B cash management is the prevalence of silos between different departments, particularly between Accounts Payable (AP) and Treasury.
Research reveals a startling statistic: 37% of companies report AP and treasury work in silos. This lack of collaboration typically leads to inefficiencies and missed opportunities for optimization.
Bottomline and Humphrey collaborated on the 2024 survey ‘Cash Management in a Digital World’ which found that “Silos are prevalent within treasury teams, between AP and treasury and between AR and treasury,” and as such are a major barrier to productivity.
Common root causes of departmental silos among respondents to that survey include the use of different systems, a lack of access to the same data, and the corporate cultures that fail to incentivize different teams to collaborate within and beyond treasury.
To address this, Humphrey suggests focusing on getting people to think and work differently. “It's about corporate culture,” he said. By fostering a collaborative environment and aligning incentives, companies can break down internal silos and improve their overall cash management strategies.
Optimizing Payment Mix and Timing
Advocates for a data-driven approach to determining the optimal mix of payment types and timing are on the leading edge of this recalibration. Humphrey himself is a true believer.
"We need to pay attention to the types and timing of payments. And the three areas most impacted are procurement, AP, and treasury," he said.
By involving all relevant departments and leveraging data analytics, companies can make more informed decisions about their payment strategies. This approach can lead to significant cost savings and improved cash flow management.
Choice of technology is important when seeking to enhance B2B cash management. The importance of AP automation platforms and AI play a huge role here.
There's major value in investing in technology for efficiency, cost savings, and increased productivity," Humphrey said. The right combination of technologies can provide significant insights into processes and bottlenecks, enabling companies to identify and address inefficiencies quickly. As Humphrey explains, "AI can help us understand trends, root causes of inefficiencies, and can automatically fix potential issues that have been resolved by human intervention in the past."
Strengthening Supplier Relationships
Effective B2B cash management isn't just about internal processes; it also involves managing relationships with suppliers.
Humphrey emphasizes the strategic value of strong supplier relationships: "Better relationships with suppliers can impact growth and provide more accurate cash forecasts."
By fostering open communication and trust with suppliers, companies can gain more control over payment types and timing, leading to improved working capital management and business continuity.
Innovation and the Strategic Value of AP
As cash management is made more precise, AP should be viewed as a strategic function rather than just a cost center. "AP can offer better forecasts of payments and improve working capital optimization," he said. By leveraging the insights and capabilities of the AP team, companies can make more informed financial decisions and improve their overall cash management strategies.
B2B cash management requires a willingness to embrace change and innovation.
"We need to get various parties aligned and look at payment types, our allocation of payment types, how we're paying our suppliers, and why," Humphrey notes.
By breaking down silos, using technology, perfecting payment strategies, and fostering strong supplier relationships, companies can significantly improve their B2B cash management practices.
This comprehensive approach not only enhances financial stability but also positions businesses for long-term success in an increasingly competitive global marketplace.
As businesses continue to navigate the complexities of B2B cash management, finance professionals seeking to refine their strategies and drive growth need to open channels of communication in new ways that rely on learnings from the past five tumultuous years.
By embracing collaboration, efficiency, and technology, companies can unlock the full potential of their cash management practices and gain a competitive edge in today's dynamic business environment.