Late and delayed supplier payments are often discussed as a problem that can plague any industry. While that may be true, in the real estate sector, suppliers are considered such valuable partners that late payments are avoided at all costs, said Jennifer Coolidge, founder and president of real estate accounts payable (AP) solution provider Nexus.
Faster supplier payments do not necessarily mean that accounts payable processes are working as efficiently as they could and should be, however. That's particularly true in the real estate industry, Coolidge recently told PYMNTS, where a complex web of banking relationships, bank accounts and business partners has the AP process struggling to detangle itself.
Penetration of electronic payments in this industry is quite low, thanks to transaction complexities, the makeup of supplier bases and the need to integrate AP and ePayment solutions into an already multifaceted back-office infrastructure — all of which remain top barriers to digitizing accounts payable. To offer an idea of just how complicated AP processes can be, Coolidge pointed to one Nexus customer.
"They have four ERPs, 10 banks they work with, 120 banking accounts," she said. "A typical real estate customer will have multiple banking relationships, hundreds of checking accounts, multiple integration packages and they want to provide multiple payment types to suppliers."
Companies do not want to consolidate funds into a single master account, though, instead preferring to maintain their multiple banking relationships, she added. That being said, the importance of the supplier base is paramount to real estate companies, giving rise to paying invoices upon receipt.
"If an elevator breaks down [on] a property, they need immediate service, and they need a supplier to not be disgruntled due to a past-due invoice," Coolidge said. "But even though they're paying these suppliers right away, they are paying about 50 percent of those suppliers by paper check still. That's really extraordinary."
Those complex banking partnerships mean AP transactions are rarely straight forward, too. A supplier that bills a real estate company for $1,000, for instance, may use different bank accounts linked to different properties to pay a portion of that invoice, and all of those payments might be sent via paper check.
Any accounts payable solution must respect the existing banking relationships, as well as the importance of the supplier base to real estate firms. To address both these needs, Nexus recently partnered with Visa to integrate a virtual card solution into its AP platform, adding capabilities that Coolidge said supports the fast supplier payments that these businesses need without compromising their network of bank partners.
Since the supplier relationship is so important, however, the challenge typically associated with commercial card adoption is amplified. Vendors may be reluctant to accept cards and the interchange fees associated with them. In the solution now offered by Nexus and Visa, vendors are emailed virtual card and transaction data that they must manually enter into their own systems to process a payment — a point of friction that may not necessarily bode well for the buyer-supplier relationship.
According to Coolidge, vendors must be educated on why virtual cards may be a better way to accept payment. While a real estate company may send out a paper check upon receipt of an invoice, that vendor must still wait several days to receive that check. Plus, the security associated with virtual cards far surpasses that of paper checks.
"We do find that suppliers that target a lot of our customers, and have a high volume of transactions, are reluctant to process the single-use virtual card emails," she noted, adding that Nexus will work with those vendors to provide efficiencies for payment processing when virtual card payments are initiated.
Nexus' work with its clients' suppliers showcases just how critical the vendor relationship is in this industry — and why efficient AP processes must not only address the needs of the real estate companies, but meet the needs of the entire supply chain. For both sides of the transaction, access to data is becoming even more important, Coolidge said, and is another factor behind why virtual cards and electronic B2B payments overall can forge deeper connections between vendors and their clients in this market.
"The conversation is changing with suppliers," she noted. "Suppliers in this industry want visibility into the transaction, they want certainty for the transaction — knowing more specifically when and how it's going to happen — and they're craving better data around the transaction."
Five checking accounts used to pay one supplier bill is not a process that fosters transparency when paper checks are used, she continued. With issues like duplicate invoices or erroneous payments remaining top challenges for the real estate industry today, enhanced visibility into B2B transactions isn't just saving time, but fostering the buyer-supplier relationship that real estate firms need to keep healthy so they can thrive.
"It gets pretty powerful for both buyer and supplier," said Coolidge.