Paper checks for domestic suppliers, wire transfers for international ones. That’s the status quo in corporate payments, and it’s not only creating friction for the business payer; it’s creating headaches for small business (SMB) accounting too.
And as more small business accountants are struggling to meet expectations to act as strategic advisors to their clients, friction associated with manual payments can be an obstacle to growth.
That’s according to Hamed Abbasi, CEO of payments technology firm Plooto. He recently told PYMNTS that small business accountants are much like their clients in the way they make and receive payments.
“Most businesses and accountants still rely on antiquated, paper-based methods to manage some stages of their process,” he said in an emailed interview with PYMNTS, pointing to the continuing popularity of checks and wire.
The Association for Financial Professionals (AFP) released its 2016 Electronic Payments Survey earlier this year and found that use of paper checks in B2B payments actually rose 1 percent compared to 2013 levels. About 44 percent of payments received are in the form of a paper check too, the report noted.
When it comes to wire transfers, meanwhile, separate analysis from the AFP found that 74 percent of companies surveyed said they were hit with a business email compromise scam in 2016, which typically involves scammers requesting payment via wire transfer for a fraudulent invoice.
“Not only are these processes inefficient and costly, they’re also prone to dispute and fraud,” said Abbasi. SMBs aren’t the only ones plagued by these points of friction either, he said: Their accountants face the same challenges when they pay and get paid via manual payment rails.
Plooto recently announced a deeper integration with its existing partner, Xero. The company is integrating its electronic payment capabilities into Xero HQ, Xero’s service for accountants, so that these professionals can send and receive payments electronically and have transaction data automatically added into the Xero HQ platform. According to Abbasi, the integration aims to provide accountants and bookkeepers with deeper, real-time visibility into their finances and the finances of their own SMB clients.
That’s not possible when SMBs continue to rely on outdated rails, he said, adding that small businesses’ books can show outdated figures as transactions remain in limbo.
“Currently, many businesses use check and wires to make payments, which means that accountants need to manually reconcile payments before they can get an accurate picture of the business’ financial performance,” the CEO explained. “Using these traditional methods, accountants do not have real-time visibility into late or failed payments. They discover a late or failed payment days or weeks after it was meant to be complete, which can have a severe impact on cash flow.”
Indeed, the issue of late payments is growing in the U.S.: Research recently released from Sage found a tenth of B2B invoices sent by small- and medium-sized businesses are paid late or never paid at all, and the problem accounts for up to $3 billion in late payments to SMB payers worldwide.
Despite the strain on cash flow, businesses continue to rely on checks and wire transfers, which not only take longer to complete, but also take longer for payers and payees to be able to identify if there is a problem with the transaction, and could contribute to invoices being paid past-due.
“Our experience shows that most small- and medium-sized businesses don’t know that they can replace checks and wires with other payment methods,” explained Abbasi. “Checks and wires have been part of business processes for decades, and many businesses find it difficult to change their existing processes. A lot of businesses think that switching to online payments will require significant time and financial investment; however, this is not the case.”
“There is also the misconception that checks and wires are safer ... than electronic payments, which is totally false,” the CEO continued. “Checks go missing in the mail all ... the time, and wires are targeted for fraud. Electronic payments are [a] much more secure method of payment.”
Cards, for instance, can address many areas of friction for smaller-value B2B transactions, while ACH is an appropriate rail for high-value B2B payments, the executive added. Small businesses and their accountants are beginning to recognize these payment rails as better options too, he said, adding that he predicts 2018 will continue to see more companies — and their accountants — embrace ePayments as part of broader technological shifts.
“We’re seeing a shift in the market where more and more businesses are seeing the value — both in the automation and insights that they gain — when using electronic payments,” he said. “AI (artificial intelligence) and machine learning are important technological trends in many industries, and accounting is no exception.”
Machine learning and AI are two technologies that can be particularly effective for more accurate cash flow forecasting, said Abbasi. Those tools will be critical to SMB accountants looking to step up to demands for more advisory services.
“Cloud accounting software and electronic payment technology [are] helping to shift the role of an accountant from a task-oriented role to an advisory role,” he noted. “Accountants and bookkeepers can spend less time manually reconciling books and more time advising businesses on how to manage their finances. By automating many of the time-consuming and manual parts for their practice, [accountants] have more capacity to grow their practice and build stronger relationships with their clients.”
Personalization will also be a key driver of the evolution of the small business accountant, he said.
“Traditionally, only large enterprises could afford to customize their application experience,” said Abbasi, but cloud computing and a growing sophistication of data analytics will enable accountants to provide a more personalized analysis of SMB finance and offer better cash management advice.
Finally, the CEO said, all of these trends are driven further by collaboration and cooperation between industry players, which has supported Plooto’s decision to work with Xero.
“FinTech companies are the driving force behind innovation for SMBs,” Abbasi stated. “Working together creates an ecosystem of innovative tools that make running a business much easier.”