Businesses look for value where they can find it and rightly so.
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.
This is essentially where integrated payables comes into play.
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.
So, if you’re still unsure of the claims of integrated payables, let’s take a quick dive into the five primary ways they will maximize the value of your Accounts Payable process!
In short order they are:
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:
- For starters, if this an approach you’re interested in pursuing, it’s going to necessitate the selection of a vendor partner that can actually deliver on the promise of simplifying your payment stream across multiple payment modalities. For example, if you are presently running 10% of your payments as check spend (regardless of the quantity, though certainly a compounding issue as the transactional counts rise) and this is not a metric you can shift into any other dynamic, automated, electronic category, then they’re going to need to have the wherewithal to handle cutting checks and the postage in an outsourced fashion as a means to fulfilling the overarching goal of responsibly addressing the disparate payment needs and methods contained within the integrated payment file you’re processing. In short, if they can’t execute all the payment types required by your unique vendor preferences then you’re not really talking about integrated payables.
- Another consideration on the integrated payables front is whether the process can be integrated into your front end invoice processing. For companies that have not pursued a broader based accounts payable automation initiative (see more on that here), you will basically invoke the launch the payment file when you batch your invoices that have been posted to your accounting system. Then when the posted transactions get batched you create the standardized output file that invokes the integrated payables execution.
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.
- Understand that when you pursue an integrated payables approach there are numerous upsides. Certainly the cost factors, processing times, visibility, enhancement of controls, and monetization are key. With that said, even if you had every possible advantage in the world to the latest and greatest of payment options, you may still have intransigent vendors that will not accommodate your latest new whirligig. In other words, some people / companies won’t change and couldn’t care less about your strategy. Therefore, it’s important to maintain some common sense when you launch out with this initiative. From our perspective you want to keep one eye on the strategic goal…make as many payments as possible streamlined, electronic, and efficient. Convert the vendors that you can to these means and default the hold outs to whatever negotiated payment terms you have in place. Some things won’t change, and that’s ok. Simply focus on the ones that will where you can generate real value for your loyalty and business and shift and monetize those opportunities. Don’t get bogged down on the ones that got away…instead take the wins where you can and move on!
- This may be a bit of a particular, but from our perspective it is something we do hear repeatedly when discussing changing how payments are done. One advantage of checks, though whether it’s a significant advantage is a prescient question. Some finance leaders like the additional time period afforded to them by the delay it normally takes to process check payments. We think this is more of an inbuilt comfort level of knowing that the corporate coffers have a bit of a buffer before funds necessary to underwrite checks clear, but to each his own. The bottom line is that pay early or pay late, either way you’re going to pay. Unless you’ve got some kind of structured money market instrument with your banking or credit institutions chances are the returns you’re going to be getting on your check float are at best going to be nominal. Granted, cash rebates earned on relevant virtual credit card spend aren’t going to be something you get rich on, but the point is they will be newfound monies you didn’t have access to before, and that is always a win for the books.
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.