The first use of a commercial card for a B2B payment was recorded by the travel industry in 1937. Yet nearly a century later, commercial cards are still not a widespread B2B payment method. Why? They are often hampered by security concerns, supplier acceptance, and incompatibility with existing financial systems.
As we enter 2024, this might be about to change. Rapid digitalisation, advances in card solution designs and pressure on corporate treasury departments to improve cashflow (caused by the current economic climate), have seen an uptick in commercial card use.
Buyers can use commercial cards to access interest-free credit for 30-90 days, offered by their card issuer. This means a buyer can pay their supplier faster, yet have extended terms with their bank. Cash flow is crucial for all businesses, large and small, so a solution that optimises working capital may be the differentiator in keeping a business open, resilient and sustainable.
The promise of faster, more efficient payments benefits both parties and encourages better buyer/supplier relationships. It also offers clear financial benefits: with interest rates currently at 5.25% in the UK, the merchant service fee associated with commercial card payments – around 2% – is far more appealing than ever and can help encourage prompt payment.
Making virtual, reality
Businesses in 2024 want enhanced security and spending controls in their B2B payments. This will drive increasing use of virtual cards; in fact, Juniper Research predicts that virtual card transactions will exceed 121 billion globally by 2027; increasing from 28 billion in 2022 and representing growth of 340%.
A virtual card is a card number which is generated for a specific purpose, be that for a one-time transaction, allocation to a specific employee or department within a company, or with a limited budget or period of time for its use.
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Virtual cards build on the benefits offered by commercial cards by offering unrivalled control over spend. They can be front-loaded to the exact amount of a specific transaction or budget, and can also be allocated to a specific employee or department within a business. This enables greater control over who can use the funds.
Mastercard calculated that virtual cards have the potential to drive cost savings of $0.50 to $14 per transaction, so we expect them to become a popular, automated payment technology in the coming year.
2024’s biggest B2B payment trend
B2B payments are often seen as lagging behind their B2C counterparts when it comes to innovation. But as B2B begins to diversify its offerings, we expect that user experience (UX) will take centre stage in the B2B world and become a real differentiator in 2024. Corporate buyers will soon expect the same simplicity as they get when buying items in their personal lives.
This will be achieved in two ways: first, through more nuanced services like Variable Recurring Payments (VRP) and Straight-Through Processing (STP), the latter of which can help turn cards from cost centres into revenue centres with greater visibility, optimisation and control.
VRPs are an evolution of the current direct debit scheme, allowing a business to make a series of payments ahead of time to better forecast spend and facilitate more informed decisions. STP on the other hand speeds up transactions by automating manual processes, such as manually processing virtual cards, providing a more efficient and secure way to handle accounts payable processes.
2024’s most unlikely payments trend
Automation has been the holy grail in B2B for years now, with businesses trying to remove manual methods to save time and money by reducing Accounts Payable (AP) and Accounts Receivable (AR) processes. However, what we’ve seen is that actually automation might not be for everyone, so a trend that may surprise you for 2024 will be some payment services saying, “Yes, you can have fully automated processes, but here are the manual elements that, if you prefer, you can use and keep under your full control.”
The real winners here will be those that can enable the best of both worlds, maximum automation, but full control, and if requested, some processes that remain manual. This may seem counterintuitive, but it is part of the larger trend for 2024, which is increasing diversification. B2B is no longer a place for “one solution fits all”, it is and really always has been, too nuanced and complex for that.
Business that can choose from a suite of services and hand-pick those most relevant to their business, will come out on top in 2024.
Pat Bermingham is CEO, Adflex