B2B Payment Terms: Surfacing Important Data with AI

Setting appropriate payment terms with your vendors and suppliers has a lasting impact on your overall cash flow management and working capital outlook. When starting business activities or beginning a new agreement with a vendor or supplier, it’s important to be actively involved and aware of the payment terms associated with the account. However, if your accounts payable (AP) team is processing thousands of invoices a month, staying aware of — and on top of — key payment terms can be extremely challenging. 

In this article we cover common and important B2B payment terms, and explore how artificial intelligence (AI) solutions can help surface critical data so AP teams can make important — and time-sensitive — business decisions that impact the bottom line.

Common invoice data

An invoice contains a plethora of data related to tracking and monitoring payment terms. In general, most invoices include:

• Invoice number
• Invoice date
• Payment date
• The period for payment
• Invoice amount
• Rules for deposits or advanced payments
• Payment plan details
• Accepted payment methods

Surprisingly, there are many AP departments that are still processing invoices manually. This could mean an accounting manager or invoice processor hand-entering data from a physical document into an ERP or payment system. This is not only extremely time-consuming, but often results in inaccuracies due to human error. 

A recent Gartner report, as featured in CFO Dive, found that 59 percent of people working in the controllership function are making several errors per month, and 33% of accountants make “at least a few” financial errors weekly. Encouragingly, the report also found that those surveyed suggest a technology implementation could make a positive impact, with 75 percent reduction in eros reported for companies with a “high technology acceptance.”

A step up from manual processing is to leverage some level of automation for ingesting and capturing invoice data, but traditional automation methods such as optical character recognition (OCR), or robotic process automation (RPA), still rely on templates, rules, and human oversight to ensure consistency across massive amounts of data. 

The most advanced and progressive AP teams are adopting AI technology to process invoices at scale. Because AI technology adapts and learns with every piece of data processed, it can continuously improve and manage various types of informational structures. In invoices, this is critical — as every vendor or supplier structures their invoice differently. 

According to a recent Gartner report, two-thirds of finance leaders surveyed by Gartner said they’re either using or actively planning to use AI or machine learning in their departments.

Important B2B payment terms

While invoice data is incredibly important to capture accurately, the payment terms associated with the invoice are also just as critical. Being able to pay invoices on time can be challenging for AP teams with mounting invoices and manual processes. Late payments often result in fees, limited payment options, strained relationships with vendors, and an overall negative impact on cash flow.

For AP teams that manage thousands of invoices each year — or each month — it’s almost impossible to be aware of every unique payment term on an invoice. While many invoices typically follow a standard net 30 terms for B2B transactions, there are others that may be used. Here are common payment terms to understand and be aware of. 

Net 30, 60, 90: This means you, the customer, have 30, 60, or 90 days to make the payment to the vendor or supplier and settle the account.

Due on receipt: This means you must pay the amount requested immediately upon receiving the invoice for your services. This can often signify the payment is due the following business day.

Pay in advance: This means you must make a deposit for all or part of the total payment before goods or services are exchanged. 

Line of credit: This means you have a line of credit, and will pay the invoices on a recurring basis, such as monthly or quarterly.

Retainer: A retainer is commonly used by professional or business services vendors and is an agreed-upon amount that you would pay on a monthly basis to ensure a set number of hours of services are provided by the vendor.

5/10 net 30: This means you will receive a 5 percent discount on an invoice due if you pay within 10 days, otherwise the full amount is due within 30 days. This is a form of an early payment discount.

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Early payment discounts in B2B payments

It’s common for vendors and suppliers to offer an early payment discount. Not only does this ensure they have consistent cash flow and more working capital on hand to run their own businesses, but it also provides an incentive to companies to pay early and pay less. For larger vendors, this can be substantial. 

For example, let’s say you purchase $200,000 of office equipment from a national furniture manufacturer. The manufacturer offers a payment term on the invoice of 5/10 net 30. You are able to act on this discount in time, which means you send a payment of $190,000, a 5 percent discount of $10,000. If you have multiple early payment discount offers like this across all of your vendors, a considerable amount of money could be left on the table if you are not taking advantage of them.

Beyond impacting the bottom line, leveraging early payment discounts can strengthen your supply chain, build better relationships with your vendors and suppliers, and give you more control over your cash flow. 

Challenges in surfacing early payment discounts

In theory, early payment discounts can be a strategic cash flow management initiative. However, being able to surface and manage these discounts across many invoices can be challenging, especially if the AP team is manually processing and entering payment data. If you can’t easily track which invoices are eligible for early payment, these discounts can be missed. Or even worse, full payment may be sent on time when a discount is available. 

Manual and outdated processes are one of the key factors in being able to process invoices and payments on time effectively. But the industry is changing, and rapidly. Gartner’s Future of Sales study predicts 80% of sales interactions between B2B suppliers and buyers will take place in digital channels by 2025.

Surfacing important B2B payment terms with AI

AI has proven to be a game changer in helping AP teams work smarter and faster. AI tools designed for the accounting team are causing a substantial leap forward in AP operations, with some solutions, such as the Vic.ai autonomous finance platform, taking on invoice processing and payments without human intervention.

AI can ingest, process, and categorize all data on an invoice quickly, including payment terms. The Vic.ai platform specifically can flag and surface available payment discounts for AP teams to take advantage of before the discount window closes. And, with multiple payment options available from within the same platform, payments can be quickly approved and sent from one system of record.

Explore how the Vic.ai platform leverages AI to create new efficiencies for managing B2B payment terms.