Electronic payment automation delivers significant time and cost savings and can actually turn accounts payable into a profit center through card rebates.
It’s one of those projects that once they’ve done it, most companies wonder why they didn’t do it sooner. In my experience, there are five common misconceptions that keep companies from moving forward with ePayments. These may have been true at one point in time, but no longer are:
Vendors won’t accept cards. Card payments are a key part of any e-payments strategy. With a comprehensive vendor enablement program, most companies can pay 20 to 25% of their vendors by card.
Many corporate finance departments don’t realize there has been a big uptick in suppliers that accept payment by card. They don’t understand why suppliers would willingly pay interchange fees when they could accept a check for free. But I’ve seen suppliers accept six-digit payments by credit card.
Why? Customers want it, and increasingly expect it. But also, accepting paper payments is costly and inconvenient. The supplier has to wait on the check, and maybe go down to a lock box to get it. Then they have to take it to the bank and wait for it to clear. With credit card payments they get the funds faster, and in a way that is convenient and secure. Many suppliers value this convenience. They have come to view it as a cost of doing business, and the fees have been baked into their margins.
Card rebates won’t amount to much. Just as some companies haven’t realized they can pay invoices by card, some also haven’t realized these cards pay rebates, just like consumer cards. And those rebates can really add up. I’ve seen companies get up to a quarter of a million dollars in rebates in one year. That’s significant for any organization.
There are two keys to maximizing rebates. First, you need a good card program. Many card programs have a tiered rebate system with a minimum volume threshold. If you don’t meet the minimum, you won’t get any rebates at all, but you won’t know that until the end of the year because the rebate is annual. A rebate program that pays out monthly and from the first dollar spent is a much better deal.
The other key is paying every supplier you possibly can by card. That again is a function of a complete supplier enablement program. A good e-payment automation solution should include a comprehensive supplier enablement program for multiple payment acceptance types including cards, ACH, outsourced print checks, and wires.
Cards open the door to fraud. When CFOs and controllers think about letting AP pay with credit cards, visions of fraud dance in their heads. They think they’ll be handing out plastic to a bunch of people they only see once a quarter. They may sneak gas and groceries on to them, or find other ways to game the system. Or, they think of vendors writing their card number on a slip of paper and it falling into the wrong hands.
It’s really a semantic problem because most of the industry does not give out physical credit cards. Instead, they issue single-use virtual cards, each with a unique, 16-digit number. It’s one of the most secure ways to pay and the card issuer protects you from any theft or fraud.
E-payments are only for big companies, or big suppliers. Accounts payable has been slow to adopt new technology. They’ve been doing things the same way for 20 or 30 years and simply aren’t aware of the advances in ePayments technology. And to be fair, technology providers haven’t really focused on AP, much less on payments, so there hasn’t been much to be aware of.
Until recently, banks were the only ePayments providers. But banks really only provide a pipe—or rails as they’re called in the industry--for moving money electronically. They do nothing to alleviate the amount of prep work AP needs to do on the front end, or the amount of follow up on the back end. And they do nothing to help with the never-ending need to manage supplier bank information. There’s still so much manual work involved that ePayments only made sense for big companies with a lot of resources, or for big suppliers who demanded it.
As with consumer payments—think Apple Pay or Google Wallet—technology companies have also been reinventing B2B payments, finally bringing full-fledged solutions to the market. These solutions bring all payment types into a single workflow and automatically determine the most advantageous way to pay. They use the cloud to provide visibility into where the payment is at all times as well as to ease supplier enablement. They provide customer service to take supplier enablement and information management off AP’s plate, and to follow up on failed payments.
Implementation will be painful. Just the word “implementation” gives CFOs and controllers pause, especially if they haven’t done a lot with the cloud. Based on memories of past implementations, they think they need to clear a big opening on the calendar and free up a lot of resources to get it done.
But today’s cloud vendors do most of the heavy lifting. Integrations are much simpler because there’s no customization. Solution providers have done the same integration over and over and they’re very good at it. Cloud e-payments solutions in particular can be implemented in one or two months, requiring under ten hours of time from the client’s IT team, and they handle all the vendor enablement through their cloud network. “Activation” would really be a better word than “implementation.”
AP can be a very painful department. There aren’t enough surfaces for all the paper involved in a typical check run. People are literally still licking stamps and getting paper cuts. New ePayments solutions streamline the process, removing most of the paper, and at the same time generate new revenue to their bottom line. AP can do better, more accurate cash flow forecasting and help with strategic cash management. They can ensure suppliers get paid faster, strengthening the company’s position in vendor negotiations. There’s a whole new world of real possibilities once you let go of myths from the past.
Brandon Faircloth is a Vice President at
