account receivables Archives

A funny thing happened while I was writing this article. While I conversed with our editorial consultant on how to approach the struggles companies are facing in the current global climate, she received this email:

The names are changed for privacy purposes

The email’s writer, “John,” is not the only accounts payable (AP) professional sending out emails like this. We’re in uncharted territory, and the rules are changing every day. But one thing we know for sure is that payments will always have to go out, and that with workers ordered to stay home, it’s very difficult to cut live checks, as John and countless other accounts payable professionals are finding. Priorities have shifted, and remote supplier payments have jumped to the top of the list.

No doubt, AP departments will find a way to get it done. Paying invoices is a core function of every company, and people are working overtime to reach out to suppliers and get them paid electronically. Maybe there is some delay, but these companies will make it through the crisis.

But I think there’s more to learn from this whole experience than just solving a short-term problem. When we go back to “normal,” do we want our old payment processes to do the same, or is this our opportunity to start making long-overdue infrastructure upgrades?

Magnifying the challenges

AP is one of the last bastions of paper processing in the enterprise, and it comes with challenges. According to the latest research from AFP, companies still make 42 percent of their payments by paper check. All those processes that are involved with paying by check—printing them, hunting for approval and signatures, and stuffing envelopes—are culprits of inefficiency.

Back-end support adds another wrench into the process. Delays and errors are inevitable, so who do suppliers call when they’re missing a payment, or they’ve found an error? Processes for resolving these supplier issues in-house are maddeningly reactive.

Now these challenges are magnified, forcing us to think differently about how we run our businesses. A surprising number of people still think that making a payment by check works, and up until recently, it’s been hard to argue with that. It’s not as efficient as it could be, but people have their check processing routines down. As more employees work from home, processes that required in-office attendance are no longer feasible. Just like John, many companies are reaching out to their suppliers, asking for different ways to make their payments. The new challenge: finding a way to securely store the data their suppliers provide them. Financial technology (fintech) companies have solved for this exact problem, and are ready to add value to AP workdays.

When most people think of adding technology to their business payments process, they usually imagine outsourcing the check writing process, doing ACH payments through their bank, and maybe having some kind of virtual card program.

Most fintechs have moved beyond that kind of disjointed offering. They look at the whole end-to-end process and implemented a process that streamlines payments and mitigates the risk of maintaining extensive supplier data by offering supplier services.

Beyond operational efficiency

Until now, the drive for supplier payment automation focused primarily on improving operational efficiency. As payment fraud rises, buyers have turned their attention to reducing the associated risk. Business continuity has not really been part of the conversation; if it came up, concerns got pushed aside as unlikely worst-case scenarios. Now is the time to address the elephant in the room, and push through the uncertainty to strengthen our AP teams.

We don’t know what the new norm is yet, but it seems clear that we’ll see a rise in remote work. The ability to quickly move so many operations online has been one source of resiliency during this time. Companies are learning more about roles previously considered to require a presence at headquarters. They’re finding that many HQ functions can be accomplished remotely by taking advantage of automation and cloud technology.

At minimum, remote capabilities cater to the business continuity strategy that meets today’s needs. But in many cases, the other benefits like added security and supplier support make automation adoption a no-brainer. By removing the stress of getting manual check payments out the door, AP teams are freed up to apply their time to more beneficial and critical tasks.

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Derek Halpern is the SVP of Sales for Nvoicepay, a FLEETCOR company. He has over 20 years of technology sales and leadership experience, including 16 years in the fintech and payments space. Derek’s previous positions include VP of Sales at Billtrust, an AR automation technology company, and Sales Director at TranZero, a payments company. Previously, Derek co-founded a company called ProService Software, which was sold to Solomon Software. Derek became the Western Region Sales Manager for Solomon following the acquisition.

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.

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Kim Lockett is the Director of Supplier Services at Nvoicepay, a FLEETCOR company. She has over 30 years of experience in financial services and payments, including the management of teams with accounts receivable responsibilities. Before her work at Nvoicepay, she managed the vendor enrollment team and handled customer reconcilement challenges at Comdata.

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Map, reconcile, done

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