Despite corporates’ retention of paper checks, businesses want accounts payable (AP) automation.
The latest B2B Payments Automation Innovation Playbook, a collaboration between PYMNTS and Mastercard, found that most businesses surveyed have not yet implemented any kind of AP automation — yet 85 percent say they want it.
In B2B payments, there appears to be a missing link, leading to a failure of corporates being able to move from wanting AP automation, to actually implementing it.
Cindy O‘Neill, president of Priority Commercial Payments, recently told PYMNTS that there are a few reasons for that disconnect. Vendor acceptance is a big factor, as is the challenge businesses face in upgrading their back-office IT and infrastructure to be able to support AP automation.
But the biggest challenge might be stemming from the fact that, according to O’Neill, there is widespread misconception about what AP automation actually means.
“AP automation is the automation of the receipt of the invoice and the workflow to approval, meaning a supplier sends an invoice to the buyer, who goes to procurement and makes sure the invoice is approved for payment,” she explained. “Integrated payables is, once that invoice has been approved, actually making the payment though multiple payment options, be it ACH, check or wire.”
In other words, AP automation doesn’t necessarily entail the actual payment of invoices. Unfortunately, enterprises will often invest in an AP automation solution on the misconception that it means their payables will also be automated and digitized, leading to buyer’s remorse, said O’Neill.
Another major misconception in the space is what it means for payables to be integrated into an enterprise resource planning (ERP) system. O’Neill noted that service providers will advertise their solutions as being able to integrate with various ERPs. However, at closer glance, that integration means their solution is able to extract data from the ERP and integrate it into their platform to facilitate payment of invoices.
“I always question, ‘Are you integrated into the ERP where you’re a native payment type within the ERP, or are you getting a file extracted out of the ERP?’” she said. “Those, to me, are two different things.”
Being able to automatically extract data out of an ERP for the purpose of paying an invoice is not necessarily a bad thing, but it’s the on-boarding process that can introduce more pain for an organization already struggling with manual accounts payable processes. In some cases, the file mapping process that must occur for that ERP “integration” can take weeks or months, and by the time a company is on-boarded, the C-suite loses interest in the AP automation transformation journey.
This is part of the IT challenge of accounts payable and ePayables automation process: An organization may be ready to ditch paper, but the on-boarding and integration friction can make the journey more painful than a company’s current way of operating.
If, in the end, an AP automation does not have the functionality — i.e. the integrated payables capability — that an organization thought it would have, then that pain was felt for nothing.
O’Neill emphasized the importance of promoting awareness among organizations about these misconceptions in AP automation. Once they’re cleared, a company can more strategically and efficiently integrate payables automation within their existing back-office platforms and processes, and make more informed decisions about what they need in terms of invoice, payment and reconciliation automation technology.
But the journey isn’t complete once those decisions are made.
With B2B payables evolving, O’Neill pointed to the growing importance of collaborating with vendors to ensure that the correct payment technologies are being used. Such was the motivation behind Priority’s recently-announced collaboration with Billtrust.
“If companies are smart about it, they will keep their suppliers in mind” when digitizing accounts payable, she said. “That relationship is so critical.”
That vendor collaboration isn’t only about deciding whether to aid in the virtual card acceptance process for vendors, or to choose ACH over checks. It’s also about managing the unique buyer-supplier contracts, payment terms, and financing agreements in place so that both ends of the transaction are comfortable with the solutions used.
That collaborative approach will continue to guide the B2B payments space as it evolves in the coming five years. The industry is embracing payment hubs and vendor networks, particularly within verticals like hospitality or health care that operate with a core group of leading suppliers in their perspective industries. Taking a network approach to ePayables automation will unlock siloes and promote seamless payments, O’Neill said.
“What I see happening is touchless processes between accounts payable and accounts receivable,” she said. “You’ll see a convergence of the two. Everybody has been so focused on the AP side, and on buyers’ preferences, and less focused on AR and how to make it easier for accounts receivable to accept payments.”