Electronic payment solutions deliver 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 completed, 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.
Card payments are a key part of any ePayments strategy. With a comprehensive vendor enablement program, most companies can pay 20 to 25 percent 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 even use 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.
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 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 can by card. This is a function of a complete supplier enablement program. A good epayment automation solution should include a comprehensive supplier enablement program for multiple payment acceptance types including cards, ACH, outsourced print checks, and wires.
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 having it fall 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.
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.
Until recently, banks were the only ePayments providers. Banks only provide a pipe—or 'rails' as the industry calls them—for moving money electronically. They do nothing to alleviate the amount of prep work AP needs on the front end, or the amount of follow up on the back end. Banks also do nothing to help with the neverending need to manage supplier bank information. With all this manual work involved, ePayments seemed to only made sense for big companies with a lot of resources, or for big suppliers who demanded it.
In consumer payments—think Apple Pay or Google Wallet—technology companies have reinvented 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 bring visibility into where the payment is at all times and to ease supplier enablement. They provide customer service to lift the supplier enablement and information management burden, and also follow up on failed payments.
Just the word “implementation” gives CFOs and controllers pause, especially if they haven’t done a lot with the cloud. With past implementations in mind, 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 ePayments solutions can be activated in one or two months, requiring under ten hours of time from the client’s IT team, meanwhile vendor enablement is handled through their cloud network. “Activation” really is 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 still licking stamps and getting paper cuts to process payments. New ePayments solutions streamline the process, removing most of the paper, and simultaneously generating new revenue for 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.