How to Support AR with Electronic Payments

How to Support AR with Electronic Payments

Plenty of arguments exist against using paper checks in business, primarily due to the burden they put on accounts payable departments. Even so, check payments are still prevalent for several reasons. They're easy to launch and universally accepted—though that is beginning to change. 

Until the relatively new rise of payment automation, paying customers' suppliers through electronic means required tremendous enablement efforts on top of figuring out data storage and maintenance processes. But, there's another hidden reason: Checks are easy for accounts receivable (AR) to deposit and reconcile.

In a rare display of business payment support, banks have stepped up to offer lockboxes to their larger customers--often for free--in order to sell other types of services. In these scenarios, the lockbox provider receives mailed checks and deposits them to the customer's account. Then they record the remittance data (e.g. invoice numbers, PO numbers, payment amounts) from check stubs and create a digital reconciliation file aggregating the data for each check received.

Map, reconcile, done

For banks to make this process work, some initial file mapping has to take place to enable the transfer of data into the customer's ERP system. Once that's done, reconciliation files send to AR through email or a secure File Transfer Protocol (FTP). AR must then pull the file and run a reconciliation process on it. The occasional item might not post because the invoice or account number was incorrect, but now you're dealing with exceptions instead of with every payment. It's not a truly digital process, because the lockbox provider still does manual check handling and data entry, but from AR's perspective, it's as good as automated. 

Compare that to the reconciliation processes for ACH, card, and wire payments. If you've ever worked in accounts receivable, you know the number of incoming emails for electronic payments is overwhelming. There's no standard file format for reconciliation; one might be in a PDF attachment while another is supplied directly in the email message. All the necessary details could appear in one place, or you could receive a truncated number with a request to retrieve the remaining data in an online portal. Some customers might not even send remittances for ACH or wire payments, forcing AR to match bank statements in their ERP.

Why AR prefers checks

The lack of file format compatibility makes it impossible to map remittances to a supplier's ERP system or even develop a consistent workflow. When your team is processing hundreds of payments a day, matching each electronic payment to a remittance is painstakingly time-consuming. I can say with 100 percent confidence that AR would rather receive paper checks through a lockbox because it goes straight to their bank, and they only have to process one digital remittance file from their bank.

As third-party payment automation providers continue to gain market share, AR teams are seeing a heavier concentration of electronic payments. Even so, nothing has really changed from their perspective. Twenty payments issued by their customers through electronic means is still 20 payments they have to process manually.

Offering lockbox for electronic payments

The dissonance caused by this auto-to-manual problem highlights an opportunity for payment automation providers to include accounts receivable in their end-to-end solutions offerings. Nvoicepay has found success in extending payment aggregation services to a number of our customers' suppliers. Those suppliers' AR teams now only have to reconcile a single payment pulled right into their ERP, mirroring the capabilities of the lockbox for checks.

We all know the check game is slowly coming to an end. Many suppliers have sacrificed the convenience of lockboxes so their customers can opt for different payment methods. Some larger suppliers aren't even accepting checks these days.

For decades, automated check reconciliation stood out as the lone sanctuary for AR professionals. However, the advent of payment automation indicates that electronic payment reconciliation is more than capable of taking up the baton.

 

 

  • Previous Article
    How to Combat Shifting Fraud Tactics
    How to Combat Shifting Fraud Tactics
  • Next Article
    A Better Payments Readiness Model for the New World
    A Better Payments Readiness Model for the New World

Most Recent Articles

How to Support AR with Electronic Payments

Nvoicepay's Director of Supplier Services, Kim Lockett, discusses how electronic payments are changing the AR game.

Making Your Case: The Four Es of Payment Automation

Paying suppliers by check is a practice that has endured for much longer than anyone would have imagined. Though COVID-19 appeared to be the tipping point for companies to go electronic, checks still cause massive bottlenecks in AP processes. Here are the Four Es to consider when making a case to automate your payments process.

Four Reasons to Consider a Non-Bank Payment Provider

Traditionally, when it comes to financial transactions, people think banks. They’ve always been there to hold our money, invest our money, and facilitate our transactions.

But that doesn’t mean they’re the only option – or the best option.

How We Found a Fresh Approach to Handling Stale Checks

Stephen Haxton, Nvoicepay's Payment Modification manager, offers a glimpse into the development of our stale check processes, as well as how it brings success to our customers.

Behind the Curtain: Automating Payments in the Healthcare Industry

COVID-19 overhauled the U.S. healthcare system overnight. Systems we paid little mind to before, whether they are life-saving medical supply manufacturers, critical hospital budgets, or ICU capacity limits, now garner universal attention. Another area of the healthcare industry is stepping into the forefront--back-office procedures. Here's how healthcare facilities can resolve their financial strain.

Why is the Supplier Experience Important in Payment Automation?

It’s a difficult time to be a supplier. Nvoicepay President Josh Cyphers explains why buyers who prioritize supplier relationships improve their own revenue streams.

How APIs are Shaping the Future of Banking and International Payments

In today’s marketplace, the consumer has many more options available to them to execute their transactions. Payment providers and banks alike now offer alternative payment pathways focused on speed, transparency, and cost, all of which contribute to a better consumer experience. One of the cornerstones of these technological advances is APIs.

It's Time to Revisit the Benefits of Virtual Card

VP of Regional Sales, Kristin Cardinali, reminds businesses that it's never too late to look at automation solutions for your back office, and explains why now is the best time to look again.

Manufacturing's Highest Value Aligns with Automation

Manufacturing businesses across the country are overwhelmingly stuck with manual payments process that cost more time and money than necessary. 

What is the Science Behind Payment Errors?

Nvoicepay's Payment Modification Lead, Deidre Christensen, gives a behind-the-scenes view of their team's efforts to reduce AP strain.

Make Sure Your Hospitality Accounting Processes Have Room to Grow

Hospitality industry automation champion, Beanworks, discusses how internal automation has created much-need relief for AP teams across the country.

How Do Electronic Payment Solutions Fulfill Supplier Needs?

When companies begin their research on electronic payment solutions, they usually have a list of pain points they want to resolve. However, it's also important to consider the other benefits offered, and how they might fit into and support more than just the basics. Nvoicepay's SVP of Operations and Customer Success, Angela Anastasakis, breaks down the lesser-known benefits to adopting a holistic solution.

Here are 5 Ways Hospitality Benefits from Payment Automation

Businesses in the hospitality industry are specialists in customer service--so it's important to set up your business for success. Automating your payments enables you to answer back-office calls for efficiency and time-saving processes without sacrificing front-office needs. Here are five ways that payment automation providers can support your business.

The New Business Case for a Powerful Payment Solution

Nvoicepay's co-founder, Karla Friede, discusses businesses' recent prioritization of payment workflows upgrades, and how B2B electronic payment providers have laid the groundwork for an easy and successful transition.

Accounting Process Best Practices: Three-Way Match

Using the right accounts payable procedures is an essential component to a business’ success. Take an honest look at your current practices and identify areas to target for improvement to increase your operational efficiency.

How to Dig Deeper for Payments Solution Differentiation

With dozens of electronic payment providers offering their solutions, it can be difficult to know how to find the one that best meets your company's needs. Nvoicepay CEO Karla Friede lists the five framework measures you should consider, and offers the questions to ask prospective solution providers before you commit.

How to Make Important Adjustments to Your Payment Strategy

As organizations begin planning their re-opening approaches, many are realizing that their operations' status quo just won't work anymore. Nvoicepay's SVP of Sales, Derek Halpern, and VP of Product and Strategy, Josh Cyphers, discuss methods for moving toward a new payment strategy.

How to Update Your Manufacturing Back Office

The manufacturing industry, who is well-known for driving change and growth, is struggling to digitize its back-office processes. Here are some tips on how to begin that transition without sacrificing time or momentum.

How to Combat Shifting Fraud Tactics

Tony Carothers, Security Systems Engineer at Nvoicepay, discusses how to protect your company against shifting fraud tactics amid the transition to a remote work environment.

How to Support AR with Electronic Payments

Nvoicepay's Director of Supplier Services, Kim Lockett, discusses how electronic payments are changing the AR game.

A Better Payments Readiness Model for the New World

Though many of us expect to return to the office soon, we still face a challenging economic downturn ahead. The status quo is still shifting, and in need of a new business model. Nvoicepay's VP of Product and Strategy, Josh Cyphers, lists the constructive changes you can make to meet your business' needs.