Before the pandemic, most businesses were living comfortably in the paper world when it came to managing their payments and collections. Many had relied for years on back-office staff to stay on top of the constant flow of checks, invoices and snail-mail.
If that approach looked outdated before, it seems prehistoric after the events of the past year.
The economic shutdown quickly exposed the vulnerabilities and inefficiencies of non-digital payment systems. Suddenly, no one could work from the office and the economic impact resulted in companies having to reduce their staffing needs.
Meanwhile, the pandemic super-charged society’s shift toward digital payments, raising the pressure on businesses to adapt to the trend or get left behind.
Digital Payments Growing
The share of U.S. consumers using two or more digital payment methods jumped to 58% in 2020 from 45% the previous year, a McKinsey survey found. Globally, the digital payments market is expected to hit $6.7 trillion by 2023, up from $4.1 trillion in 2019.
The business payments cycle is inexorably speeding up as a result of the digital shift. Businesses increasingly want payments immediately rather than in the traditional 30 days’ time.
The Federal Reserve, recognizing the significance of the technological and cultural change, has embraced the shift with continued plans to launch a new settlements system to support real-time payments by 2023-24.
These developments make it clear that the status quo on payments is no longer a viable option for businesses. Resistance to change by businesses has stemmed from a feeling of comfort with the old-school methods and from the expenses involved in transitioning to new systems.
Smart businesses will see this as an opportunity. The pandemic has created a once-in-a-generation chance for companies to adopt payment frameworks that will be transformational and flexible enough to survive the next crisis. The added bonus is this adoption continues to grow the payments eco-system and will help drive efficiencies inside their own offices.
Making the Move
There are three key areas that businesses need to be thinking about as they piece together their digital framework.
First, they need tools that work together to give a complete picture of their data at any one time. These tools should focus on both sides of a payment; so ask yourself two questions. 1. How do we pay? 2. How do we collect?
Second, it’s vital for businesses to be nimble as they move away from the paper era. They need to be ready to turn on a dime to meet the rapidly changing expectations from consumers, clients and suppliers. Payments and collections need to operate on multiple rails, with access to a range of tools such as digital check deposits, contactless payments, same-day ACH transfers and virtual credit cards.
Third, businesses should be constantly reviewing their controls as they build out their digital framework and never lapse into a “set it and forget it” mentality. A key part of this is ensuring businesses have robust fraud protections in place as they shift more into the online space.
As they put these pieces in place, it’s vital for every business to have a strong advisory team, and that team should always include their banker. As a business owner, you may never have the need to borrow funds or take a loan from a bank, but there will always be a need to secure your money and have the right access to tools to help leverage this new digital era.
It’s important that these value-added discussions are being had with your banker. Embracing a digital-first payments system is about more than just surviving the new normal; it’s about thriving in it.
As the economy starts to reawaken, businesses should be asking themselves whether they are ready for a new world of digital payments.
Those that seize this opportunity will likely emerge as the more successful and sustainable businesses in the long run.