Page 301 - The Digital Financial Services (DFS) Ecosystem

ITU-T Focus Group Digital Financial Services
Ecosystem

what we owe, businesses, on the other hand, often pay less than the invoice – sometimes they have a legitimate
reason for doing so (the product received was the wrong size or colour, the quantity was less than expected,
the scope of the project was reduced, etc.), other times they do it because they can.
This means that when a business sends a payment, they also send an explanation of what the payment is
for. They send a list of invoices and the amount paid for each, along with some sort of rationale for any short
pays. This explanation is called a “remittance” (not the same as a P2P remittance), and for manual forms of
payment this remittance is delivered along with the cash or check.

Informal businesses may not furnish invoices, and may not have formal accounting methods, instead tracking
obligations in hand written ledgers – or even keeping track of them in their minds. Successful entrepreneurs,
regardless of how informal their business practices may be, have means of ensuring that they are paid what
they are owed.

As a consumer in the developed world, the cost of payments is limited to the stamp used to mail a check, the
monthly fee for a bank account, or an ATM fee to withdraw cash. In the developing world, most transactions
are made via cash and the associated costs are indirect: Time queuing to pay bills; potential agent fees to
receive cash; transport costs; and, of course, the risk of theft. Whether in the developed or the developing
world, consumers do not typically associate cost with payments for their purchases. Yet businesses that sell to
consumers are accustomed to paying to be paid – particularly if they accept credit cards. But even those that
accept cash recognize the cost of handling cash, ensuring security from internal fraud, and external theft. A
business buyer (the company that is paying) may have significant cost associated with making and receiving
payments.

All businesses have similar requirements for B2B payments. This is true for a sole proprietorship in Peru, and
the biggest stores in London. Companies may emphasize the importance of some features more than others,
and the sophistication of the processes and tools used vary. However, all businesses require:
• Control over timing of disbursements and collections: Businesses need to manage their cash flow. They
want to control the timing of funds going out as payments to suppliers and to employees as payroll. Also,
ideally, they’d like to be able to predict when funds will arrive. Knowing when their customers will pay
them enables them to manage their borrowing (or invest excess funds).

• Security of payments: Businesses need to feel secure and safe when making and receiving payments.
They want to feel comfortable delegating responsibility to employees. They also want to know that they
are protected from fraudsters outside their company. Cash may be convenient, but it is also expensive to
secure. The relatively large size of B2B payments means that security measures appropriate for consumer
payments may need to be augmented.
• Data: Businesses need to be able to track payments. They need to get payment data into their accounting
‘system’ (whether it is a manual ledger, a spreadsheet, accounting software, or an ERP system) so that
they can close out obligations recorded in their receivables. They need to know who paid, what they
paid for, and who still owes them money. The sooner they follow up on collections, the more likely they
are to be paid. Data that enables tracking customer accounts is also key to recognizing the most valuable
customers and attracting more like them. Similarly, expenses need to be allocated to the appropriate
categories, projects, product lines, or locations so that businesses can understand the profitability of
goods and services. Even tiny, informal businesses operating without digital tools have mechanisms for
tracking outstanding payments and often a nuanced understanding of the profitability of the goods and
services they sell – even if it means relying on handwritten records or memory. Businesses seeking credit
recognize the value of accurate and auditable records when it comes time to borrow funds.
• Efficiency: Most entrepreneurs start businesses because they are enthusiastic about the goods and
services they provide – they are passionate about tutoring youth, providing medicine to their village
at its first ever pharmacy, installing and maintaining electrical systems, etc. They are often much less
enthusiastic about the administrative and financial management tasks associated with running a business.
Thus, tools that make bookkeeping and invoicing easier and faster are much appreciated. Digitizing
payments often means that the information associated with transactions is in a variety of different

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