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Research indicates that middle-market businesses have been slower to invest in deploying digitized financial processes than their larger and smaller peers.Chinnapong/iStockPhoto / Getty Images

Ballal Ahmad is vice-president, product management, commercial products and B2B payments, with Mastercard in Canada.

The challenge of adapting to today’s new digital norm has unveiled pain points and significant inefficiencies for many businesses. These include issues in core systems used to manage business operations and cash flow, such as accounts payable and accounts receivable, and they have prompted investment in electronic payments and process automation.

Most of this innovation and investment, however, is concentrated within Canada’s large enterprise and small-business segments. Despite experiencing many of the same challenges, new research reveals that it is middle-market businesses which have struggled to embark on the same transformative journeys. While some of these businesses have begun automation efforts, there continues to be heavy reliance on simple or repurposed tools for core process automation.

The research, commissioned by Mastercard in partnership with consultancy Kaiser Associates, reveals the critical needs and opportunities for middle-market businesses, defined as those with annual revenues between $10-million and $500-million. These businesses – which can range from law firms to fast-food chains – appear to be suffering from a form of marketplace “middle child syndrome” in which the segment is overlooked.

The research indicates that this business segment has been slower to invest in deploying digitized financial processes than their larger and smaller peers. That situation is fuelled by a limited understanding of new technologies and systems that can significantly enhance financial operations, and an element of inertia and complacency that means some businesses settle for “good enough” systems. Instead, capabilities are often being adapted from tools or platforms whose complexity of functions are poorly suited for many middle-market businesses.

This has manifested itself in a perceived lack of demand for these services, which, in turn, has created a lack of focus at financial institutions in offering solutions tailored to the mid-market segment. As a result, this segment has been deprioritized and is underserved by banks, fintechs, B2B payment hubs and other partners.

It’s a cycle that needs to be broken.

In particular, the study highlights the urgent need for automated accounts payable and receivable processes, easier electronic payments, multifaceted risk-mitigation capabilities, and new travel and expense tools suited to today’s new norm in an era of digitization.

Accounts payable is a core component of any business, yet research highlights there continues to be a critical need for automation and easier electronic payment systems in the mid-market business segment. Currently, these companies report battling “antiquated” and time-intensive manual invoice processing, which imposes delays, adds costs and burdens the accounting team. There’s a lack of process digitization, with a desire and need to develop internal processes and transition from cheque payments to e-payments, and to implement more integrated systems.

Key pain points these businesses report include lack of invoicing and approvals automation, lack of process digitization, integration challenges with enterprise resource planning and banking portals, the need for more cost-effective and easier international money transfers, and better risk management and oversight to reduce cyber and fraud risks.

Accounts receivable teams, meanwhile, face many of the same challenges as their accounts payable peers, with a desire and need to streamline their work flows, transition from cheques to e-payments, and implement more automated processes. Anticipation of sustained receivables growth driven by accelerating buyer demand underline the urgency of the need to innovate to enable companies to prioritize data centralization, process automation and enhance buyer management. This, in turn, helps address the key pain points around delayed payment management, lack of automated invoicing and PO processing, and the need for easier card acceptance and electronic receivables systems.

Regardless of financial process, the post-COVID world has highlighted the importance, and risks, of increased connectivity. Middle-market businesses that implement digital processes are becoming more reliant on third-party connections than ever. Yet many of these same businesses lack robust cybersecurity expertise and struggle to evaluate their threat environments even as national and industry-level regulations drive a need for enhanced vulnerability assessment tools (such as the Retail Payments Activity Act and the Critical Cyber Systems Protection Act).

Looking at the path forward for Canada’s middle-market businesses, there needs to be both an immediate and a long-term approach. Longer-term, a greater focus by commercial banks and financial services providers will create a more customized and diverse suite of vital offerings to support this segment.

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