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How to Make Important Adjustments to Your Payment Strategy

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How to Make Important Adjustments to Your Payment Strategy

The first couple of weeks of sheltering in place regulations saw finance and accounts payable organizations scrambling to set up remote operations and get payments out the door. Most were able to accomplish these goals quite well. Now we’ve moved into the next step–establishing efficient workflows and productive practices. It’s still challenging, however. Companies have to find ways to keep people safe while executing paper-based processes that keep their teams office-bound. For example, many companies still have to go into the office to pick up mail, circulate invoices for approval, and prepare checks for mailing.

They also must consider the best way to move forward and develop strategies for managing their teams through economic uncertainty. The Conference Board, a non-partisan economic think tank, recently sketched out three possible scenarios. Their best-case scenario predicts a 3.6% decline in US GDP for 2020, while the worst case would see a 7.4% decline. In other words, nobody knows what the next six to 12 months are going to look like.

That means AP needs to focus on conserving cash while keeping operations moving. They can expect more calls from suppliers since Accounts Receivable teams typically ramp up their efforts in tough times. They need to prioritize payments and capture early pay discounts. Procurement is going to reach out to try and renegotiate prices or terms. Treasury is going to be very interested in the timing of payments and managing working capital. It’s on the AP team’s shoulders to make sure they’re engaging with these teams and coordinating efforts.

At the same time, they’ve got to consider the efficiency and the productivity of their own team as we continue to work remotely. Among other things, that means coming up with a strategy for shifting to electronic payments at scale.

Many organizations have had this goal for a long time, but, depending on the research you look at, around 40 percent of business payments still issue by check. This number is down from a decade ago, but still problematic in a remote work environment. So why don’t businesses pay more of their suppliers electronically? Well, as everyone who rushed to shift suppliers to ACH payments when shelter at home orders took effect has learned, you can’t just flip a switch and move all your suppliers.

It’s easy enough to find a bank to handle ACH transactions for you. It also sounds a lot cheaper upfront than checks—if you only look at transaction processing costs, which are usually well below $1.

But with ACH, you have to enable your suppliers one by one, and then store and update their data securely. That becomes a fixed cost because there’s a constant churn of suppliers and their bank data–changes usually around once every four years per supplier. You should also expect to manage exceptions that arise with ACH file submissions and more nuanced supplier questions.

Thinking ACH is cheap or straightforward is one of the biggest misconceptions holding companies back from paying electronically. That’s not to say you shouldn’t make ACH payments. That said, they should be part of a holistic strategy that addresses the entire payments workflow, encompassing all forms of payment, including international wire payments.

What does that look like?

Card first

If you’re going to reach out to suppliers to enable them for electronic payments, you should first ask them to accept payment by credit card.

Virtual cards–sometimes known as single-use ghost accounts or SUGAs–are not as well-known as they should be in finance and accounting circles. Still, they can be an incredibly valuable part of your payment strategy. Unlike P-cards or company-issued credit cards, virtual cards exist to pay suppliers easily. Each card has a unique number that can only be used by the assigned recipient in the designated amount. That provides AP with substantial control and makes it one of the most secure, fraud-proof payment methods. You also should expect to receive rebates to offset some of your AP costs.

The main challenges are enablement and outreach, which don’t require significant effort on the part of AP teams since virtual card payment and remittance are relatively straightforward for suppliers. All that’s left is to structure your rebate program to support your team’s efforts and then some.

ACH for most

If a supplier declines to accept card, which often happens due to the interchange fee, your second request should be to enable them for ACH. Most vendors will say yes to this; in fact, they’d prefer it to check. Just be sure you have a realistic appreciation of the true ACH payment operating costs, including enablement and data management, as well as fraud support.

Check for holdouts

While the number is dwindling, there are some suppliers with a ride-or-die mentality who won’t accept anything but checks. For these suppliers, an outsourced payment provider can do a print check from an electronic file, so your team doesn’t have to handle all the paper.

Your payment strategy should include automating the payment workflow. Fintech ePayment providers wrap these disparate workflows into one interface so that all AP has to do is click “pay.” Then their payments will issue to their suppliers in the method they elected to receive. Because these platforms are in the cloud, payments can be approved and scheduled remotely, with visibility for multiple team members.

Heightened fraud protection

Your payment strategy should also include fraud protection. The pandemic, the move to remote work, and challenging economic conditions have created a perfect storm for a rise in all types of crime, including payment fraud. It’s essential to have strong internal controls, especially now that sensitive information is residing in your teams’ homes and on their personal networks. Preventing theft is a key component of cash management.

It used to be that organizations mainly worried about check fraud, and that’s still a problem, but it’s reduced quite a bit thanks to controls such as Positive Pay, Positive Payee, and watermarks on checks. So far, there aren’t similar controls for ACH. As businesses have gravitated towards ACH solutions, such payments have become more of a target for fraudsters. That’s a problem because the funds move faster, making it much harder to recover a fraudulent ACH.

Business Email Compromise (BEC) schemes are the most common type of attack. These involve fraudsters masquerading as suppliers, company executives, or other high-ranking personnel, requesting that funds route to a new, fraudulent bank account. We’re already seeing that the pandemic has provided BEC scammers with new material to convince an overwhelmed AP to comply with these requests.

To protect your team, you need a partner who can support your enablement and fraud protection goals, so your team can stay focused on cash management.

Finance and AP have long intended to go electronic, but the transition has been slow. It’s not just the flip of a switch or the sudden addition of a new payment type. Very few businesses realize how strategic the shift is until after they’ve committed to an update. Many companies that don’t plan accordingly have had to revert to check payments when they realized the actual cost and effort it takes to switch suppliers over. Rather than trying to attack a single pain point, you have to address the whole process from top to bottom.

Now we are going to see an acceleration of this shift with the remote workforce and challenging economic conditions. There is a new imperative, and there is also new technology. Interestingly enough, a lot of the fintechs providing B2B payments technology got their start during the great recession, when the financial system collapsed, and cloud technology was being born. These are now mature companies, ready to “cross the chasm” and transition their partners to 100 percent electronic payments.

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Derek Halpern is the SVP of Sales for Nvoicepay. 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. Derek earned a BS in Business Management from Pepperdine University.

Josh Cyphers is the Vice President of Product & Strategy for Nvoicepay. For the past 20 years, Josh has managed successful growth for a variety of companies, from start-ups to Fortune 100 companies. Prior to Nvoicepay, Josh was a Senior Manager and Consultant at Microsoft, Vice President of Finance at Visa, and Business Planning and Analysis Manager at Nike. Josh is a lapsed CPA, and has a BS in Economics from Eastern Oregon University.

payments

A Better Payments Readiness Model for the New World

Difficult economic times are ahead. We don’t know how difficult they’ll be, or how long they’ll last, but finance teams around the globe are bracing for them. Cash management and cost-cutting will be essential. Fraud protection—which is always a concern—will be even more important as criminals seek to capitalize on fear and confusion. If that wasn’t enough, companies have to support remote AP teams simultaneously.

By late March, a significant portion of AP staff had already begun working from home. This posed some challenges. There’s a long-held belief that anything related to the handling of company funds needs to happen inside the building. This widely accepted rule is supported by physical reality since many companies aren’t automated enough to support alternatives.

So paper invoices and expensive checks continue to send through the mail, and reference documents fill the cabinets. Even companies with cloud-based ERP systems may find them cumbersome to use when attempting to VPN in from home. AP still fields many supplier calls about payment errors or missing funds. For that, they rely on enterprise telephony systems, which are difficult to replicate in their own homes. Finally, there’s a lot of collaboration and teamwork that happens with accounts receivable, finance, and other functions, and a lot of that centers around moving paper.

Unsurprisingly, in a poll of 131 accounts payable professionals Nvoicepay conducted during a recent webcast on business continuity, 39 percent said the pandemic significantly impacted their operations. Nine percent said there was no impact because they still had to go into the office.

A second poll also found four key challenges accounts payable teams are working through as they implement remote payment operations:

The challenge is overwhelming. Based on our experience in the market, our product team has developed a four-part hierarchy called the “Supplier Payments Readiness Model” to help customers think through all the dimensions of their remote payment organization efforts.

1. Obtaining essential tools

In our poll, 26 percent of respondents reported that equipping their teams to work from home is a top focus, indicating teams are still struggling with this. People will need computers. There’s a spike in demand right now, so ideally, you have some already in your inventory. If not, work on building that stock for future preparedness.

Your team will need internet access and a home office setup, preferably a secure one. They’re going to need telephones and phone routing because those trying to contact your AP team will likely call your central office phone number.

They also need collaboration tools. With employees working remotely, you may run into productivity issues if you try to have everyone work via email.

Don’t forget to address inevitable morale issues proactively. Working remotely can be lonely and stressful if you’re used to be in the office with your colleagues all the time. And, with kids schooling from home, parents are being asked to play the role of educator along with their professional role. It’s a very challenging time. Think about establishing a regular team call, as well as frequent individual check-ins.

2. Establishing a remote workforce

Once you have remote capabilities set up, you’ll need to figure out your new workflow. The typical AP process has a lot of moving parts, some automated and some manual. Sketch out your whole process. Identify what you can currently do remotely, what can quickly become remote, and when you need people to come into the office. Designate those assignments, so you don’t have too many people showing up at once.

Start to look for technologies that can fill the gaps between manual processes, such as AP workflow systems, invoice ingestion systems, and payments automation. You may also want to make a case for a cloud-based ERP if your organization doesn’t have it, as well as e-invoicing to eliminate paper invoices. You want your team focused on cash management, not paper driving.

3. Providing visibility and control

As you redesign your workflows, re-evaluate your internal controls. Most established under the notion that people would be in the office, with locked filing cabinets and limited access to certain information. In a remote environment, you will probably need to put new controls in place.

Companies tend to hire more people in accounts receivable during a downturn, so there may be an uptick in inbound calls from suppliers trying to accelerate payment at the same time you’re attempting to conserve cash. Conversations between you and your suppliers need to happen so you can renegotiate terms and set them up for electronic payments. It’s best if you also work with internal business partners—such as treasury and procurement—to make sure that only prioritized payments are going out.

Maintaining internal controls will be very challenging unless you move to cloud-based technologies that give your team remote, role-based controls, visibility, and approval capabilities.

4. Mitigate payment fraud and risk

The convergence of three very challenging situations—generalized fear and chaos; hastily assembled remote work processes, and a tough economic environment—is creating a perfect storm for fraudsters to exploit. According to the 2019 AFP Payments Fraud and Control Survey Report, 80 percent of organizations surveyed said they experienced actual or attempted payment fraud in 2018. Eight percent of the respondents from that same survey said they had payment fraud losses of 0.5 to 1.5 percent of annual revenues.

This is already concerning since sophisticated cyberattacks on ACH and wire payments have been on the uptick. You want to shift vendors to electronic payments, but you also have to put new controls in place. Banks don’t provide the same positive pay or positive payee services on ACH and wire payments, and they don’t assume liability for fraud. The inability to recover those payments increases your risk. Paying your suppliers by virtual card will help you offset costs with rebates, and provide you with a more secure way to pay.

It’s anyone’s guess how long we are going to be in lockdown mode. With money tight, it’s tempting to look at these as stopgap business continuity measures that you don’t want to overinvest in. I would argue that investing in AP automation is long overdue. Even if everyone goes back to the office in a few months, do you want your employees to return to printing checks and shuffling paper? And what about the next crisis?

Forward-thinking companies have been adopting payment automation technologies precisely because they provide AP with cost savings, superior visibility and control, and fraud protection—everything that’s called for at this moment in time. They also allow you to maintain your operational workflow—even in a remote environment—without skipping a beat. It’s not just the right thing to do right now. It’s the right thing to do, period.

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Josh Cyphers is the Vice President of Product & Strategy for Nvoicepay, a FLEETCOR Company. For the past 20 years, Josh has managed successful growth for a variety of companies, from start-ups to Fortune 100 companies.