September 12, 2023 | By Nicole Radil and Toby Cole
At the end of every buyer is a supplier. At the end of every supplier is a buyer. Both want the best terms: high “days payable outstanding” (DPO) for buyers so they can defer payments as much as possible; low “days sales outstanding” (DSO) for suppliers so they can receive payments as quickly as possible.
Corporate treasurers often find themselves on both sides. Whether negotiating payment terms with an external partner or juggling accounts payable (AP) with accounts receivable (AR) across internal teams, a day spent darting between buying and supplying can make treasurers feel like they are talking to themselves.
The result is a circular tug of war with treasurers feeling like they are pulling on both ends, albeit not at the same time. They know the questions to ask, and the unevenness of responses is palpable. Some efficiency in access to reliable data is needed, particularly regarding working capital.
No wonder that 77% of AR teams in the US are not completely up to date on invoices, according to a 2023 survey,1 and 45% of companies worldwide note tension between AP teams and suppliers around late payments, according to a 2022 Mastercard-sponsored survey.
So many treasury management questions, a single source of truth
Some questions are common to buyers and suppliers. How can I strengthen my working capital? How can I improve collaboration across departments? How can I meet reporting requirements? How can I improve the entire purchase-to-payment process, known as “procure to pay” or “source to settle” for buyers and “order to cash” for suppliers, while reducing fraud?
Buyers and suppliers then have sets of questions for each other. Which suppliers meet my payment acceptance needs, satisfy my environmental, social and governance (ESG) or diversity, equity and inclusion (DEI) considerations, and are in the correct merchant category code (MCC) for card payments? Which buyers can guarantee payments, ensure payments are timely, and meet my know-your-customer (KYC) requirements?
Unanswered questions can cause internal tensions when datasets are not consolidated, payment terms are not standardized, and manual reconciliation is inefficient. In addition, external tensions can arise when buyers’ expectations around payment types and pricing are met by limited supplier acceptance or price increases to offset any associated fees.
Answers come from a treasury analytics platform that combines complete visibility into corporate treasury payment flows with supplier data from a payment network.
The platform ingests data from all enterprise resource planning (ERP) systems across a business and then cleanses and normalizes the data using AI intelligence. Every department can access the same consolidated dashboard when identifying opportunities across buyer-supplier relationships and trade finance deals. The impact of specific adjustments to the type, channel and time of payments in one business unit becomes apparent across all units for stronger working capital throughout the business.
The addition of a payment network’s data on supplier acceptance preferences then lets buyers know in advance whether card payments are a viable option. Where applicable, this data may also extend to account-to-account payments depending on the payment network.
Yet nestled within this efficiency is a curious anomaly from an overarching payments perspective. Card payments are popular worldwide, representing around $20 trillion of an estimated potential size of $45 trillion in consumer to business (C2B) payments in 2021. But that degree of popularity does not yet fully extend to commercial payments, whether business to business (B2B) or government to business (G2B), despite an estimated potential size of $135 trillion in 2021.2
The role of cards in commercial B2B payments
Far be it from a payments network with a vested interest in card payments to suggest that cards are an essential component of all treasury management solutions. They are not. But they are a fundamental component of a treasurer’s working capital strategy.
In terms of non-card payments, the story of the demise of paper checks, or cheques, does not need retelling. A more relevant narrative comes from electronic fund transfers (EFTs), which are typically made via an automated clearing house (ACH). Real-time payments (RTPs) can fix some ACH issues by offering speed and transaction guarantees. Yet, despite their benefits, they are not always an option since they require equally instant fraud protection and do not allow payment reversals. In addition, the RTP infrastructure or “payment rail” is often not in place.
Cards could perhaps be seen as a default option. They offer guaranteed payments on internationally trusted networks and detailed transaction data with one-to-one matches for payment reconciliation. Buyers appreciate deferred payments on credit cards to preserve the “float”, and they benefit from card-issuer rebates based on spend volume. Suppliers can attain “preferred supplier status” on a payment network’s recommended list. And, when available, straight-through processing (STP) lets buyers send payments directly to suppliers’ accounts without the need for manual data entry.
In 2022, the total gross dollar volume (GDV) of commercial payments on Mastercard-branded credit and debit cards grew 24% from 2021 on a local currency basis. Payment aggregators and payment facilitators now make it easy to accept card payments. The difference between the two largely stems from an aggregator handling an individual merchant ID (MID) on behalf of a larger supplier, while a facilitator uses a shared MID across smaller suppliers.
The timing is fortunate. It coincides with the growth of virtual cards as digital replacements for physical cards. They offer several benefits in addition to all the usual benefits of card payments.
Increased fraud and personally identifiable information (PII) protection comes from unique proxy account numbers generated for each transaction, which also relieves the burden of having to handle or store sensitive payment credentials. Meanwhile, the ability to set controls on the amount, time and type of transactions can increase transparency for cashflow management. The option to schedule automatic card termination, even after just one use, can also prevent accidental spend by employees while further protecting against fraud.
Treasured intelligence
At Mastercard we internally handle tens of thousands of “purchase requisitions” each year for submission to procurement teams who then submit “purchase orders” to suppliers in over 180 countries. Complexity on the supplier side is similarly burdensome.
We find a single source of truth and clarity around the impact of payment methods and their timing with our global treasury intelligence platform, a cloud-based AI-powered solution that analyzes complex payments data to deliver quantified, actionable insights all in one place. The consolidated visualization has allowed us to reduce our time spent manually connecting data by 75% and better allocate our resources elsewhere.
We in turn offer the platform to our customers. The industry idiom for offering to customers a product used in house is “drinking your own champagne”—a far more appealing activity than talking to yourself.
To learn more about global treasury intelligence, experience the interactive demo.
2 Oxford Economics, Euromonitor, Kaiser, McKinsey, Findex (World Bank), Deloitte analysis and Mastercard internal analysis.
