For Smoother Cash Flow and Easier Month End Closes, Payment APIs Might Be the Trick

The push toward payments digitization traces its roots to the 1970s, beginning with the Automated Clearing House — the first real attempt to create a fully automated digital payments system.

Fast forward a few decades, and it may seem that progress has been glacial. After all, more than half of all B2B payments are still made with paper checks, said Tom Harel, chief technology officer and co-founder of B2B payments automation platform Routable.

Of course, the pandemic has been accelerating the transition toward automated interactions between payers and payees. Harel cautioned that we may not ever be fully rid of the paper check, which has at least some advantages (you don’t need to know a lot about the recipient, after all — just their name, address and a few other details).

In the age of far-flung workforces, it’s becoming increasingly beneficial to use advanced technologies — payments application programming interfaces (APIs) in particular — to streamline the month-end close.

In general, payment APIs help companies move money, programmatically, instead of relying on humans to enter data and numbers or grapple with checks.

Read more: Readying High-Volume B2B Payments For An Era Of Transparency And Control

“The key benefits,” said Harel, “lie with a reduction of manual workflows that allow you to scale with lower headcount.” Human interactions, he said, give way to applications talking to one another, calculating the money flows that are necessary and enabling the flows themselves. There’s also the benefit of increased accuracy (after all, computers generally don’t make typos).

The Routable interface, he told PYMNTS, enables enterprise clients to send and receive payments in a Venmo-like fashion across AP/AR departments, with just an email address in hand.

“You don’t need to contain and retain all this payment information for your clients that might be sensitive,” he said. That added layer of security, he said, can help [organizations] more fully embrace digital payments. Routable has estimated that through using its software, client firms can cut out 80% of their manual payment tasks.

And, as he added, automation can help cut down on fraud risk, where scammers and fraudsters can prey on human emotions and trick them into offering up sensitive data and account details.

With an eye on the mechanics of payments themselves — as concept and execution — Harel noted that every transaction has two sides: One party makes the payment; another receives it. But there’s a bit of structural imbalance in the mix. Vendors and customers on the accounts (AR) receivable side of the equation tend to have better infrastructure and access to data — with more visibility into the payments themselves and why they are being paid.

“They also have access to better security,” he said of the AR department, “because there are no longer pieces of paper or credit cards that are lying around the office. There’s less access to [personal information].”

Payment APIs, he said, can address the inefficiencies that exist within the cash flow process — and for the AR department, especially, there can be benefits for firms’ being paid on time or even early (payers gain the benefits of discounts).

Holding Onto the Cash

He said the AP department could hold on to cash as long as possible without missing the deadline and incurring fees.

Without automation, he said, “There is a slow exchange of information.” That information is mired in paper, PDFs, phone calls, and even fax machines.

Batch payments have traditionally been a pain point, he said. Taking three invoices and satisfying them with one payment, for instance, has traditionally involved a juggling act between accountants, reference numbers and various ledgers in the back office trying to make sense of it all.

See also: How Automation Reduces Month-End Close Headaches for the CFO

But with payments APIs, and with the digitally linked connections online between senders and receivers, he said, “there’s a beautiful flow of funds information where we can understand from our clients that they want to select bills one, two and three and pay [with one payment].” Routable, he said, can automate those processes and map data back to enterprises’ accounting systems, helping to reconcile their books.

In the digital age, he said, for AR and AP teams, “being able to communicate effectively and quickly is key to solving problems.”