Accounts payable (AP), like many other spaces in the business world, has been trending towards automation for at least five years. For a while, AP automation growth saw a steady if tepid increase. Now, revamping AP systems has become one piece of a broader and more tactical review of financial operations across organizations. Accounts payable is just one important leg of the procure-to-pay ecosystem. Another equally important and connected piece is supply management, and though AP and the supply chain are separated by multiple intermediary processes, one still directly affects the other.
To learn more about the importance of considering supplier relationships when using AP automation, PaymentsJournal sat down with Kim Lockett, VP of Customer Success and Services at Nvoicepay, and Steve Murphy, Director of Commercial and Enterprise Payments Advisory Service at Mercator Advisory Group.
Turning problems into opportunities
The push to assess and digitize internal processes may have started as a COVID-induced crisis but has now transitioned into an opportunity to think strategically about the future. “We’ve conquered the initial COVID piece of it, where we had to figure things out,” said Lockett. “Now let’s look at the bigger picture.” There is always room to grow in business, and presently, the smart move is to increase operational intelligence and effectiveness. Creating automated workflow adds benefits for all parties by digitizing upfront invoice recognition and determining the best payment options.
Murphy summarized the wave of payments modernization: “Because of the pressures on bank bottom lines and the corporate need for liquidity, faster payment rails, and the transition to new payments messaging standards, there’s definitely a move towards modern tech as a service model,” he said. “That [model] can adapt more readily to infrastructure choices on a plug-and-play basis, using APIs as the integration method.”
Payables automation serves suppliers
Why do customers or companies want to automate? Easy: it makes things quicker. The massive disruption to the economy caused by the COVID-19 pandemic lockdowns has snowballed into the worst global supply chain shortage in decades. “The last thing you want is to have a long dragging process from AP to prolong what we’ve already seen with the supply chain side,” said Lockett. “Automation equals faster, cleaner, and more efficient.”
Nearly $25-30 trillion is wrapped up in global trade and cross-border B2B commerce, according to Murphy. Even small delays can cause major issues for companies that need to constantly send and/or receive vast sums of money to and from the farthest reaches of the planet. “You’ve got ships sitting in ports, and one day can make a difference in the speed of payment,” Murphy explained. With many companies just trying to stay afloat in a time of financial instability, unexpected inefficiencies can make or break a company in as little as one week. AP automation can drastically ease a supplier pain point in the payments cycle. “The ability to utilize a payment provider to get payments from A to B in a way that you’re not able to it today… that’s a pretty big deal,” said Lockett.
Digitized payments leads to data insights
In order to apply payments in a timely and efficient manner, suppliers need certain pieces of information, whether it is an invoice number, an account number, or a PO (purchase order) number. “If we don’t have the information, this has to go to unapplied cash, and we all know what happens when money sits in unapplied cash,” said Lockett. “That doesn’t benefit anyone.” Digitization lets companies and suppliers share key data with one another more quickly.
Additionally, once that digital information is secured, it adds value to the company. “One of the underappreciated or maybe even unrecognized benefits of the automation process is that once you’ve got all this digital information, you can treat it as an asset,” Murphy suggested. “You can then use the latest gen technology like robotic process automation and machine learning to actually – in the algorithms – improve those matching processes and even build in intelligent decisions.”
By automatically recognizing and connecting payment patterns, companies can optimize their operations and reduce costly errors. If, for example, an automated AP system notices that a large number of customers send payments to the same supplier, companies can choose to efficiently bundle payment data to import right into the ERP (enterprise resource planning) system for processing. Increased flow of information brings down the cost of accepting payments. “The biggest part of that cost is handling errors,” Murphy clarified. “To the extent that you can increase that straight-through processing when nobody has to touch it… that’s part of the primary reason we want to automate.”
Roadmap for implementation
Implementing an automated AP process can look scary to a lot of organizations. According to Lockett, there are a number of obstacles that all dovetail together and must be overcome in order for companies to even begin the automation journey:
- “If it’s not broken, don’t fix it” – Sticking with old systems because they still technically work.
- Inertia – Sticking with old systems because it takes more energy to change course.
- Fear of the unknown – Sticking with old systems because of uncertainty around potential replacements.
- Fear of time commitment – Sticking with old systems because of a desire to avoid disruptions and it is quicker to patch up issues with a short-term band-aid.
Nvoicepay puts those concerns to rest by leading companies through the process every step of the way. “You’re going to get an implementation manager,” Lockett explained. “They’ve got a guideline that’s going to say, Here’s our project plan, here’s what we need to do to get to the end result.”
The service setup is adaptable to each specific company, using a “plug-and-play” infrastructure. Implementation timeframes might range from 60 to 90 days, depending on what type of ERP system the company has. By mobilizing a full team devoted to ensuring a smooth transition to AP automation, Nvoicepay will set several wheels in motion at once:
- Mapping the ERP system – Processing payments that are sent out.
- Starting enrollment efforts – Contacting suppliers by phone or email to ask questions about payment preferences.
- Providing a unique URL – Setting up a link that allows vendors or suppliers to enroll in the payments system.
- Training personnel – Walking employees through trial payments and ensuring they understand the full extent of the process.
One company making the move towards automation leads to a domino effect, particularly in vertical industries. “If you see that your competitors are starting to do things better, it becomes a disadvantage not to automate,” Murphy pointed out. Whether it’s the construction industry, the automotive industry, or the hospitality industry, similar businesses share similar back-end issues, and they will compare notes with one another even if they consider themselves competitors in the marketplace. “Word of mouth is a really big deal,” Lockett concluded. “When somebody makes the comment that they’ve made a decision and it made a huge impact to their company, others will follow suit.”