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Digital innovation has transformed payments for businesses and consumers in recent years. One area that has lagged, however, is accounts receivable (AR). Many businesses still rely on manual, time-consuming, and costly processes when it comes to AR.
But that’s beginning to change. Advanced technologies such as cloud computing, artificial intelligence, and machine learning are starting to transform and automate AR processes, saving businesses time and money.
To find out how, PaymentsJournal sat down with Alex Hoffmann, EVP of Payments for Versapay, the industry’s first Collaborative AR Network, and Steve Murphy, Director of the Commercial and Enterprise Payments Advisory Service at Mercator Advisory Group.
Innovation in Accounts Receivable Payments
Innovation in accounts receivable has been slower than in other areas of business where teams enjoy cloud-based platforms like Salesforce and Asana, but Hoffmann noted that is starting to change.
“We believe we are at the onset of a cloud-based revolution that is combining payments with accounts receivable,” he said.
Murphy agreed, noting that receivables has not been an area where most companies invest in new technology, especially compared with accounts payables.
“But that has started to change the last few years, even before the pandemic,” he said. “Now companies are looking at their end-to-end processes and looking to connect payables and receivables.”
Hoffmann detailed several primary ways AR payments have been processed in the past, all of which have their flaws.
First, there has been a lack of adoption for the integrated customer portals that many manufacturers and wholesalers have introduced. Second, while many clients choose to pay their invoices with virtual cards, this creates headaches for their suppliers. Finally, there is still a substantial reconciliation challenge to process due to the fact that 30% of B2B payments are still received via paper checks.
Lack of Adoption with Customer Portals
Regarding customer portals, Hoffmann said that many companies have set these up to accept payments from their smaller clients. The problem, however, is a lack of adoption.
Typically, many manufacturers and wholesalers have a “long tail” of small business clients, said Hoffmann, and they try to streamline payments from these clients using payments portals. However, this has not proved to be a great solution, as many clients simply don’t use the portal.
“The problem is a lack of adoption,” he added. “The worst thing you can [do] is invest in software that your customer doesn’t use.”
That’s why Versapay developed a different approach. Their Collaborative AR Network provides complete payment data, actions, requests, collaboration history, payment predictions, and actionable insights to facilitate delightful customer experiences. It has a cloud-based collaboration portal that connects AR teams with their customers. It makes data transparent and combines powerful invoicing, collections, and payments automation.
“It intermediates the dialog between buyer and seller. For the seller, issues get resolved quickly and easily, and relationships are built, not broken. The Buyer experience is improved by not missing invoices, and the ability to easily apply credits and eliminate delinquency calls happen more efficiently, thus increasing a better a customer experience,” said Hoffmann. “This enables invoices to be resolved quicker and businesses to get paid faster.” Versapay also has an Intelligent Invoice, which was redesigned so the invoice data is tracked to provide complete remittance data throughout the entire AR lifecycle.
“So smaller customers have a very easy way to make payments the way that they want and an easy way to communicate with the supplier,” said Hoffman. “It’s why Versapay clients enjoy an 80% customer portal adoption rate while other leading providers only see around 20%”
Virtual Cards: Convenience for Payer, Hassle for Payee
Many large businesses, on the other hand, prefer to make their payments to suppliers with virtual cards. These are generally very convenient for the payer, but often are a challenge for AR departments, Hoffmann opined.
“Typically, [AR departments] will receive an email that contains a card number, then click [on] a link to obtain the card number, and then manually input the card number into a virtual terminal somewhere,” Hoffmann explained. “Then the remittance data must be input manually, and the payment needs to be reconciled with the ERP [enterprise resource planning] system.”This causes a lot of manual work for accounts receivable receivable departments, which not only take up a hefty amount of employees’ time but can also lead to human error.
Automation, however, can remove much of this headache. For example, Versapay has partnered with American Express to automate AmEx virtual card payments that are made to suppliers in order to increase efficiency and accelerate cash flow. The solution includes Versapay’s ePayment Delivery Service (ePDS), which eliminates email-based payment delivery and automates the processing and reconciling of virtual card payments. ePayment Delivery Service ingests, transforms, and delivers remittance data directly to suppliers. With available straight-through-processing, ePDS can fully automate virtual card acceptance.
The benefits to AR departments are many by implementing this kind of virtual card automation. They get paid faster and their employees are freed up to focus on more strategic work.
Checks: Still a Predominant Payment Method
While much of the world has largely ditched checks, checks are still widely used in America.
This poses an obvious problem for businesses, as checks are a costly, inefficient, paper-based way to process payments. Typically, businesses receive a check along with some form of remittance file and then must match the service or product to the payment.
“Despite the digital transformation taking place across the industry, checks are a time-intensive and complicated process to deal with,” Hoffmann said.
By implementing AI-based cash application solutions, companies can avoid this hassle. Earlier this year, Versapay recognized that this was a major issue in the AR department and acquired DadeSystems, a leading cash application software that uses AI and machine learning to automate one of the most challenging parts of AR by streamlining the receipt, matching, and reconciliation of payments no matter how they are received. By adding DadePay solutions to Versapay’s Collaborative AR Network, enterprises can digitize and automate all their customer payments, including checks, bank-to-bank transfers, credit cards, and mobile payments.
Accelerating over Hurdles
When it comes to upgrading accounts receivable systems, the biggest hurdle for most companies is inertia, Murphy noted. It can be hard to get buy-in from internal stakeholders or prove the ROI for upgrading systems. However, cloud-based systems that automate accounts receivable processes make the case easy, he said. There is no need for significant IT investment and there are no long implementation times.
Furthermore, automating AR processes will enable businesses to operate more efficiently and take better advantage of all the data they possess, Murphy said.
“As you automate systems and processes, you will be gathering a lot more useful data,” he said.
In tough economic times and in a rising interest rate environment, automating accounts receivables also provides a significant benefit because it enables companies to get paid faster as cash becomes more expensive, said Hoffmann.
“We see this as the moment of acceleration for AR innovation,” he said.