Before starting AvidXchange, you co-founded PlanetResume.com. Why the jump from resumes to Payment Automation?
My whole career has been based on taking specific business processes and figuring out how to automate them.
To back up a bit, my first company I started was a software company in Boston that helped municipalities automate the billing and collection of their taxes. I then moved to Charlotte and started MTS (planetresume.com was simply the domain name and the public front end for candidates). Again, I wanted to solve a business problem – companies were struggling to find the right technology-skill-set workers. We developed a suite of web-based tools so they could automate the entire end-to-end hiring process for this type of employee. Essentially, MTS was an early version of software as a service for recruiting.
From there, I became interested in figuring out how to automate the way companies manage their accounts payable (A/P) documents — a paper-based, manual process for most companies. That of course led to AvidXchange. Once we became good at automating the A/P process – the process that we saw had similar characteristics was the payments process. It was dominated by lots of paper checks in a non-automated way and that’s what led us to create our payment offering – combined with our A/P offering, we created an entire B2B bill pay process for middle market companies.
How does AvidXchange differ from other payment automation systems?
We like to define what makes us revolutionary, rather than just different – and it’s really three key areas.
First, when others say they automate the payment process, typically they aren’t referring to the entire process. When we refer to it and how we define it is the receipt of the invoice all the way through the execution of payment.
Second, we have the benefit of time since we started 15 years ago. By the way we grew our invoicing system – over time – we’ve integrated to more than 120 of the most popular accounting systems for middle market companies. That’s the cornerstone today of what makes us highly different.
Third, we have the opportunity to build our own payment network. In order to maximize the amount of electronic payments that our clients are generating and vendors are receiving, we built our AvidPay Network, which is our own payment network. Today, close to 50 percent of all payments that go through our network are electronic (versus checks), and that component of it is highly differentiated in terms of how we execute our payments.
And you mentioned transforming AP departments into profit centers. How do you do that?
What we’re able to do is to take that traditional paper-intensive, manual, people-intensive process of managing AP and apply technology to it, so it’s a streamlined process. That means less labor is involved by using technology, and therefore the expense goes down.
Also, we have a program for qualified companies where we provide incentives to maximize the percentage of payments that we’re able to distribute as electronic payments.
The combination of streamlining the process, and providing incentives to customers turns the department into a profit center.
What has changed in the payment automation business over the last five years?
The biggest thing that has changed is the proliferation of the different types of electronic payments. It used to be that people thought of electronic payments as just ACH transactions. Today, we have virtual card transactions, and enhanced ACH transactions. We also have our own payment network, which helps us with distribution of electronic options.
There are many different flavors of electronic payments today – some that are card-based and others that are versions of traditional ACH, which makes it a fairly dynamic distribution process. One of the methodologies we employ, which we believe works really well for middle market companies, is that we don’t force the company to manage the payment type. All they do is produce the payment file. When it comes to AvidXchange, our payment network manages the best way to pay each vendor – whether it be a paper check, or a version of one of the three or four different flavors of electronic payments. Our payment network manages all that so the customer doesn’t have to be involved with managing any payment vendor information.
Do you believe that payment automation systems still have room to evolve and make the process even simpler for businesses?
Absolutely. When we think of the middle market, we define it as companies between $5 million and $1 billion in revenue. There are approximately 340,000 companies in the U.S. of this type, and we estimate that less than 20 percent have automated this business process – maybe some have taken baby steps – but such a small percentage of companies has automated the entire process (from invoice receipt to execution of payment). As such, there is plenty of room to continue to evolve in terms of providing the most technology and most tools to customers to manage their payment process for their particular needs.
In a recent white paper from your team titled, “Four Reasons Automation Isn’t Scary,” it is stated that the reason why paper is still used is because it is tangible. Do you believe that there will come a time where paper is removed from the system altogether or will people never get over the tangible element of using paper?
I’m of the belief that if you look at the history of the payment evolution, the consumer market and the characteristics of consumers supersede the impact on business for these types of applications in the neighborhood of 10-20 years. If you look at the consumer base for bill payment, the growth has been dramatic. Today the statistic is well north of 70 percent of all consumers that make the majority of payments with electronic payments. We expect the same trend line is going to continue on the B2B side – it’s just going to be lagging. It may take us another 10-20 years to get there, but there will be a day when the vast majority of payments going out will be electronic. And, paper checks will either be eliminated or will be an exception type of payment that is utilized.
The best analogy is – do businesses still operate with pegboards and manual ledgers? No – they’ve already adopted electronic accounting systems. They’ve already moved from paper-based ledgers to electronic accounting systems because they’ve found that electronic systems are more flexible, offer more control and better access to data than manual-based ledgers do. The same applies to payments.