The future of B2B payments will be inclined towards creating a win-win scenario for both buyers and suppliers, and one such novel finance tool is dynamic vendor financing.
According to industry reports, the B2B spending in India is expected to rise by 10.3% in 2022-23 as the country’s businesses are growing nearly thrice as fast as the comparable peers in other countries, in the last year.
Companies credit this uptick to some of the trends that have emerged or accelerated during the pandemic such as payments automation, digital payments, and the adoption of new approaches riding on the disruptive technology and innovative product offering by the Fintech players who are playing a key role in transformation of the B2B payments segment.
One of the key hindrances in the transformation of the B2B payments segment is its complexity, due to the extended credit timeline, manual intervention in processes and payments, cashflow mismanagement and delays, cumbersome process structure, and lack of adaptability to current market trends.
Moreover, businesses also face challenges in integrating with the myriad systems followed by different companies and their varied payment modes, creating difficulty to reconcile, causing high costs and processing delays, tracking pains, and a high risk of fraud.
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According to market insights, approximately Rs 10.7 lakh crore is stuck as delayed payments to MSMEs in India, amounting to 6% of India’s GVA (Gross Value Added) for FY 2020-21. An average of 66% of the total value of B2B invoices was overdue and 3% are left unpaid.
Delayed payments are a critical issue not only for the economy but also disrupts the supply chain by reducing liquidity and putting local vendors in a precarious situation to sustain themselves, thus impacting the overall industry growth.
Understanding these challenges, there has been an increasing digitalization of B2B payments and the processes have become more streamlined, as companies have adopted automated payment methods and financing solutions like invoice discounting, and digital payments to facilitate liquidity and timely payments.
Fintechs in the B2B payments space have targeted specific pain points to create innovative and digital value propositions that bring significant benefits to both suppliers and buyers, within the regulatory framework.
The future of B2B payments will be inclined towards creating a win-win scenario for both buyers and suppliers, and one such novel finance tool is dynamic vendor financing. It empowers vendors with liquidity options as and when needed and buyers can leverage it to improve their working capital and EBITDA margins.
Fintechs are equipped with the know-how to use technology to transform traditional practices into new-age tech-enabled processes. Tools like AI and ML, and big data analytics will help businesses to evaluate the creditworthiness and intent to repay, thus reducing delinquencies.
Moreover, Fintechs can build customized solutions owing to the different business cycles and credit needs of SBMs. Data insights, vendor behavior trends on the platform, user patterns, and the dynamic demand-supply of funds in a supply chain are key triggers to plot optimal rates and right pricing points to create a win-win situation for each buyer and seller and mobilize funds within the supply chain.
It also adds a level of security and data privacy against fraudulent players or dubious entries into the system. Technologies such as cloud and APIs and emerging technologies like Blockchain are making B2B payments faster, simpler, and cheaper.
Automation in B2B payments is the end goal if it is possible to accomplish it without compromising security, it would be truly game-changing for the B2B sector. Payment automation helps in being compliant with government norms and regulations, simplifies complex processes with minimal manual intervention, and improves the vendor experience of doing business with an organization.
With the accelerated digital shift of B2B businesses, business operations must be upgraded to address the rising demand through digital channels. Banks and Fintechs have already started to provide digital channels to take advantage of the huge B2B payments market, albeit in intricacies.
The B2B sector plays a critical role in India to achieve its dream of a $ 5 trillion economy, so it is imperative to fuel India’s GDP growth by fundamentally transforming how businesses pay and get paid.
