9 Things To Know When Planning Your B2B Payment Processing Strategy
Winding down Q2
6 min read
Chris Cosgrove
:
Oct 7, 2019 12:39:20 PM
This drives internal improvements and causes organizations to reinvent and stay healthy. Those who don’t innovate, change, and adapt, ultimately die. Today, we want to unpack an area of high value that many companies have yet to fully exploit in their financial back office. The concept is integrated payables and is a relatively new one that exists in the back end of the accounts payable process, specifically payments. It’s also an area that hasn’t seen disruption for many years. In the US, payments have plodded along, still dominated by antiquated approaches like physical check. Some estimate as late as 2016 still ascribe nearly 51% of commercial payments to checks.
This is improved from years past where checks and wire were really the only ways to pay, but with the advent of ACH and credit card based payments, checks have been on a steady decline, yet they still exist and with substantial usage.
Because in short, it’s easy to continue to use something that still, despite its flaws, works.
Checks get the job done for many businesses, though they do present some downsides.
The primary reason to segue away from check usage in the b2b payments landscape is because they cost a fair amount to produce (per The Accounts Payable Network, $5.14 / check on average) to process, cut, and mail. That adds up, especially if you’re cranking out a high volume of them.
The second reason checks are a nightmare is because of the time it takes to mail and then cash them. If you were to boil it down it all comes back to a lack of efficiency
Now, because of the inefficiencies of the check and the advent of alternative types of payment you have many companies across the world that are paying with multiple payment methodologies, which means one word...complexity.
The concept is simple. Take a single payment output file and have it seamlessly execute the various, disparate payment methodologies in one fell stroke. At a high level the advantages are obvious...not having to manage multiple different payment files or runs and the time associated with preparing and executing those payments. From that point you have the cost considerations that arise from inefficient payments. Wires and checks are the leading culprits here, and if you can convert that spend into more favorable methods like ACH or even virtual credit card, then you have a recipe for significant enhancement of controls, payment speed, and corporate profitability, which are all great things.
Payment Options - As stated above integrated payables means one singular payment file can incorporate any of the following payment types - check, wire, ACH (EFT), and virtual credit cards. (If you’re not sure about what virtual cards and the hype on them, check this out). The takeaway is that you can manage a host of options with simplicity and ease. That’s always a good thing.
It’s Bank Agnostic - In other words, you can execute an integrated payables approach regardless of whom you’re banking with today. We understand that banking needs change from business to business based on a variety of fluctuating criteria. As such, because of the agile approach solid integrated payables partners take, the bank you use is a moot point as the payment network and platform exists above the banking layer, meaning you can plug and play any bank into the solution. This is great so that you can make the changes you need as your business grows and never skip a beat.
Easy Integration - One of the ways integrated payables is made super simple is through a straightforward file based integration methodology. Rather than relying upon old school approaches and legacy tech, you can have confidence that this approach is repeatable, scalable, and dependable. It’s the primary reason you can bank agnostically too, because accurately communicating the payment requests and disbursements is facilitated through standardized file connectivity.
Time & Cost Savings - Making payments strategically (with an eye towards electronic means) means that you waste far less time executing check runs, printing, posting, and mailing. Getting better insight and visibility into payments also cuts down time wasted in administering the process and keeps you focused on the task at hand, not keeping plates spinning. All of this translates to cost savings as you ditch expensive methods for affordable and more efficient payment types.
Monetization – Perhaps one of the most appealing features of an integrated payables approach is the notion that your money (corporate payables) can actually be leveraged to make you money (earned rebates). This concept is widely understood at a personal finance level and has growing adoption in the B2B arena. The takeaway here is that a growing cadre of businesses accept virtual credit cards as a legitimate form of payments for commercial transactions. Although this type of spend assumes the accepting merchant incurs a transaction fee, the reason they do this is to ameliorate their supplier base by providing multiple, flexible options for payment. Also, many businesses leverage corporate credit cards in their travel and expense, P-card requisitioning, and other areas and find themselves in a bit of a moral conundrum when they are willing to leverage the purchase flexibility of card without necessarily being willing to accept cards for payment. This trend is changing however, with more businesses being willing to both pay and receive payment via card.
One final point on the power and scope of card payments is that they can truly be a source of transformation for AP as a whole and can actually have the net effect of converting AP from a cost center to a profit center, which even a couple years back was a non-reality.
Additional thoughts when it comes to integrated payables:
However, an alternative that may represent a higher degree of value, sophistication, and automation would be to connect the up front components of invoice processing to incorporate the launch of payments via integrated payables. In other words, if you’re leveraging things like automated electronic workflow, with a set of business rules governing invoice escalation through your business’ approval matrix, then upon having the invoice formally approved by the final process stakeholder, you can automatically set the system to invoke the integrated payables trigger without having to wait for it to generate as a result of the accounting system batching process. In other words, the two, inter-related functions of approving the invoice and actually triggering the payment can be dynamically linked between two disparate systems, which is cool. It speeds up the process and begins to leverage efficiencies through the seamless connection of data across platforms. These things actually matter of course in environments that are burdened or where you have a high transactional volume of invoices that you’re dealing with.
In closing this out, we know this was a bit more of a walk through of the value points of integrated payables, but if it’s an idea you’re hearing more about of late, that’s because it’s gaining in popularity. The question is if you’re pursuing it how can you align your corporate payables to most benefit from the approach, because there is typically something for everyone in terms of the gains afforded by it.
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