Join Maggie Schroeder, CPA and Senior Solutions Consultant for an ON24 webinar, “How Automated Payments Improve AP Efficiency, Visibility and Analytics” Thursday, August 12 at 10 a.m. Pacific. Click here to register now!
Spurred by the need for remote work capabilities, companies today are trying to move from manual processes to electronic vendor payments. This transition is easier said than done. On the face of it, electronic payments seem more efficient but, without the proper tools and partners, they can end up causing more work. It pays to think about electronic payments from a holistic perspective from the start to avoid this roadblock.
An efficient payment process is one in which you can send a single payment file--containing all your payments--to a payment automation provider, without it requiring any additional follow-up. If you have any questions or need to check on a payment there should be one centralized place where you can view all that information while your payment partner handles any payment errors that occur. Linear and simple!
That is a far cry from what happens when you don’t have the right tools or partners in place. Many companies try to piece together different products for different payment types. They may choose a banking partner for sending ACH payments, an outsourced check printing firm, a credit card partner, and a tool for automating the payment approval process.
Seems simple, right? All you have to do is call up your bank or enterprise resource planning (ERP) provider. No request for proposal (RFP) process is required; no need to run vendors and contracts through legal and compliance. Even if each partner can only handle one or two pieces of the process, it seems easier than finding a new partner to handle the whole thing from end to end (which is not as complicated as it sounds, to be fair).
Adding these electronic processes to your back-office as separate elements may feel like a quick, inexpensive way to move to electronic payments, but it could come back to bite you. This patchwork approach creates more inefficiencies that surface pretty quickly and have to be addressed by the accounts payable (AP) team on an ongoing basis.
It is easy enough to launch a card program, but there is a lot that goes into optimizing that program on an ongoing basis. You will be responsible for contacting vendors to see if they’ll accept payment by card and maintaining a responsive contact at that company who is willing to run the card when prompted. AP teams rarely have time to do that, making their card programs less successful and often below the levels of rebates they were expecting.
Security can also be an issue with in-house card programs. When you’re managing a card program in-house, you’re probably using purchasing cards or T&E cards rather than virtual cards, which likely means you’re not keeping cards secure.
In my role at a previous company, I was the person responsible for running those (unfortunately insecure) card payments. We kept copies of customers’ credit cards in an unlocked drawer. Whenever they were ready to pay, we would go into the drawer, pull the card number and run through our terminal or portal. That's a pretty common setup, and it’s nowhere near as secure as a virtual card. Also, if the card number changes or is hacked you will need to communicate that to every supplier who has been running your card, adding additional hours of work to your team.
Managing an ACH program poses many of the same challenges. Reaching out to vendors to get them on the program, collecting, and keeping up with changes in banking information is a lot of work that usually nobody has spare time for. Also, storing vendor banking information in a way that is compliant can be tedious and has a lot of red tape. Working with a vendor that is already SOC compliant can save time and money. Few organizations can keep up with all the technology and training needed to prevent ACH fraud, which is the fastest-growing form of payment fraud.
Teams may also find that routine payment runs are more complicated with a piecemeal setup. Instead of running one payment file every time, you’ve got to work with three different systems and partners that aren’t communicating with each other--four if you’re also making cross-border payments. You’re managing too many relationships and projects, and anytime you need data to research a payment you’ve got three different places to look.
There are some banks that offer full AP, but they’re not actually technology providers. They’re just running your payments through one or more vendors and charging you a premium for it. Since banks are not the actual service provider, any time you have a question or a problem, they’re going to have to take it to the service provider and then get back to you. You’re adding time and another layer of communication. Not to mention you probably won’t get the same level of services--payment indemnification, fraud protection and error resolution--from most banks or software providers either, but you can with a payment automation provider.
Arguably the biggest challenge with electronic payments is vendor enablement--getting vendors set up and then managing their payment data on an ongoing basis, because vendor data is dynamic. Neither a bank nor a collection of providers, is a large scale vendor network. According to Nvoicepay internal data, about 25% of your vendors will change their information each year. You’ll need someone on your side managing those changes.
Our platform is powered by the cloud, making managing a vendor network scalable. Cloud-based payment providers can handle the data all at once on behalf of all their customers that pay that vendor. If the payment provider enables a vendor for card payment, that vendor is enabled for card payment for every customer that pays them within our network. By leveraging the payment provider’s network, you can pay far more of your vendors electronically with no extra effort on your part.
Vendor payments are a process. Up until the last decade or so, we didn’t have technology that could address the whole payment process from end-to-end. There was no “Salesforce for payments.” All we had was a collection of different payment products. Each of the payment products required a certain amount of manual work on the front end to be able to send the payment and on the back end to reconcile and fix any errors. There was a tremendous amount of inefficiency.
Today, you can hand off all that work to one company--a company that specializes in vendor payments and customer service, and has the process down to a science, using technology to automate as much of your process as possible. Implementation takes just a few weeks. It requires a few hours of IT time, your vendor list, and an hour or two of initial training. The final step in simplifying your entire AP process is sending one payment file and letting your partners handle the rest. Now that’s real efficiency.