Driving B2B Electronic Payment Automation for Accounts Payable and Receivable – by Dan Peacock

Business-to-business payments (B2B) drive the U.S. economy. In fact, B2B payments currently represent more than three-quarters of all payments nationwide, and they are forecasted to represent over four-fifths of payments by 2023, according to The Payments Forecast Book.

Despite such strength, however, accounts payable (AP) and accounts receivable (AR) remain manual processes that are too expensive, too time-consuming, generate too many exceptions and provide inadequate visibility into critical financial information.

Fortunately, a better solution is available.

Check Your AP and AR

The accounts payable and accounts receivable processes regularly top lists as the most time-consuming and paper-intensive finance and administration functions faced by businesses – even ahead of activities such as payroll, tax and audit, and reporting. Efforts to improve them through invoice processing automation have largely been undermined by restrictions from tight capital budgets, lack of IT resources for supporting automation initiatives, concerns about the risks of project failure and challenges with integrating invoice processing solutions with downstream systems.

Automation of AP and AR would seem a logical step. The problem, however, is that the business community still maintains heavy use of paper checks. While ACH and wire payments are common – and typically the preferred method – check issuance remains the default. In fact, The Credit Research foundation and NACHA predict that ACH transactions will not surpass checks as the leading form of payment received from business customers until 2020.

Another problem is that, as AP and AR departments migrate to electronic payments, remittance information is often sent separately from the payment itself, and often received at varying times. This remittance disassociation gives rise to the need for the manual keying of information without a source to validate against, thus creating errors. If clients do not have downstream processes to protect against errors, this can create a nightmare scenario.

Integrate and Communicate

To automate back-office operations, companies must increase electronic payment methods. With increased automation, businesses will see many benefits, including reduced labor requirements/back-office staff, lower processing costs, improved data accuracy, better traceability, increased scaling capability and better fraud control.

Other emerging initiatives in the world of payments will have profound impact on the way businesses pay each other; particularly the way invoice remittance information is reconciled. First, payments are getting faster as countries around the globe implement instant payment schemes that clear and settle transactions in seconds rather than hours (or days). ACH and Wire payments will remain vital alternatives (alongside new faster payments) for business customers due to the special needs of payroll payments, multiple-debits and the convenience of batch processing, but instant payment mechanisms allow for much greater control of cash flows and improve risk position control. In parallel, open banking initiatives along with the use of application program interfaces (API) across the world are also expected to make big waves in B2B payments.

The hype around faster payments, open banking and APIs is initially focused on consumer apps, but treasury departments are evaluating how similar techniques will be able to streamline AP and AR processes, especially with the ability to send remittance information attached to each payment to ease reconciliation. With open APIs, businesses can integrate notifications for when funds hit accounts. Already established in Europe through the widespread adoption of ISO 20022 payment messaging (mandated by Europe’s second Payment Services Directive – PSD2), the U.S. can expect similar developments soon.

The migration toward electronic payments will drive increased automation of AP and AR processes, eliminating manual keying errors and provide visibility on invoice data for validation and reconciliation. Wallet share will increase by boosting revenue opportunities with existing customers, and retaining customers with sticky applications that provide unprecedented visibility and transparency.

Automatic Efficiency

Partnering is a vital step in increasing automation and developing a strategic solution. Businesses and their financial institutions need scalable solutions that grow with the client base and their ever-demanding needs. Get it right and the results are improved operational efficiency for bank and client.

The time to act is now as the technology available becomes increasingly sophisticated; going it alone may not be an option. The emergence of blockchain and cryptocurrencies is a case in point. These technologies will continue to evolve and the banking system needs to continue being open-minded about around-the-payment use cases for this innovation. Currently, these technologies are focused more on international B2B use cases, but as the technology is better understood and becomes more ubiquitous, new use cases will emerge, so adaptability and agility is vital going forward.