B2B Payments

AP Automation’s Uncertain Impact On Late Payments

While the global pandemic has pushed organizations into the digitization fast lane, the need to move accounts payable (AP) to the cloud did not suddenly lift the multitude of barriers organizations have historically faced when modernizing their back offices.

On the contrary, in many ways, the pandemic added to that list of friction points, especially for small- to medium-sized businesses (SMBs).

What's more, although there is likely to be a range of long-term implications on how organizations operate their AP departments well after the pandemic, the effects of widespread, sudden digitization and automation may not be exactly what many in the market expect today.

According to SoftCo CSO Killian McCarthy, there are significant opportunities for companies, and SMBs in particular, to benefit from this sudden digitization wave. Although there may be some unanticipated impacts on how payments flow through the supply chain, McCarthy told PYMNTS that the cash flow benefits for both buyers and suppliers can be significant — and that the long-term impacts of today on AP departments will affect operations far beyond the payment itself.

Stubborn Barriers

With the pandemic creating an environment in which it is nearly impossible to continue operating in-person and via paper-based AP workflows, SMBs have had to quickly assess their options to migrate AP to the cloud and support a remote workforce. According to McCarthy, after weeks of some SMBs remaining on the fence about exactly how to move forward with this process, many are now taking the leap.

Yet they continue to face barriers to digitization that, in some cases, are even higher than they were in a pre-pandemic world. The pandemic has tightened SMBs' belts even more so than usual, and yet these firms must get an automated AP system up-and-running as quickly as possible.

To address this challenge, SoftCo recently rolled out ExpressAP, an iteration of its existing AP solution designed for SMBs to be able to quickly implement automated AP workflow technology. It was also key that the technology could be adopted remotely, with businesses no longer able to support on-site training.

The tool is being offered free for 60 days, with McCarthy nothing that businesses are allowed to return to their old ways of managing AP should they choose to in a post-pandemic world — although, he said, that's not likely to occur.

He pointed to financial institution (FI) clients that have already forged a path for how to operate in the months and years ahead.

"Some of those large financial institutions are not forecasting the requirements of having the same amount of office space," he said. "They've mobilized their workforce to work remote, and this is going to accelerate cloud adoption and accelerate the flexibility of the virtual office."

Prolific Impacts

In addition to overcoming barriers like a lack of a physical facility in which to receive invoices and cut checks, as well as cost limitations, McCarthy emphasized the fact that the digitization of AP has profound impacts far beyond the four walls of the AP department itself. Any solution designed to support a remote AP staff must also keep this in mind.

"It's not just the AP team that are going to be remote working," he said. "You also have the business approvers across the organization — they need to be mobile-enabled as well."

Some of the most positive effects of AP automation will also be felt further down the supply chain across organizations' vendor bases. One of the biggest opportunities for SMBs today is in early payment discounts, with AP automation able to accelerate workflows and gear up a payment more quickly to capture a significant saving on an invoice — a strategy key to turning AP into a profit center, he said.

Early payment discounts can offer a cash flow benefit to vendors as well as a way for corporate buyers to save money, but McCarthy was careful to note that AP automation does not necessarily mean that delayed and late payments to suppliers — a challenge that has proliferated and intensified in the wake of the pandemic in many industries — will go away. Rather, AP automation can present a business with the visibility and capability of deciding when to pay.

And indeed, he noted, that increased visibility may even lead more businesses to delay payment to support their own cash flow needs.

"Now, you have huge fluctuations with currency and treasury," he said. "You could have $100,000 in approved invoices, but from a working capital perspective, I might say I'm going to try to get 45-day [payment terms] instead of 30. Many companies are looking at optimizing working capital as long as possible because sales are down, costs are ongoing, and cash is king."

Overcoming Change Inertia

Despite the ability — and even incentive — to delay payment, supply chains around the world are seeing proactive efforts from corporate buyers to accelerate payments to vendors to support the overall financial health of their partners. AP automation indeed presents a greater opportunity to follow suit for SMBs.

It's up to companies themselves to decide how they will use the new capabilities at their fingertips as a result of AP digitization in a post-pandemic world of remote working and cloud-based business operations. It's impossible to say what that future will look like exactly, but according to McCarthy, for many businesses there has been one surprising revelation as a result of the current turmoil.

"They've surprised themselves with their ability to enable digitization as quickly as they did, and with the ability of the organization to embrace change in this environment," he said.

Organizations are operating without the ability for in-person training, tighter budgets, and the persistent friction of resistance to change. Yet with so much volatility thrust upon the global markets, more companies are understanding that change is inevitable — and necessary to survive.

"In an old environment, where you have on-site workshops and projects, the barriers that were internal then were change management," McCarthy said. "Change has been imposed on the people now, and this is one of the ways they're coping with the change."

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NEW PYMNTS DATA: HOW WE SHOP – SEPTEMBER 2020 

The How We Shop Report, a PYMNTS collaboration with PayPal, aims to understand how consumers of all ages and incomes are shifting to shopping and paying online in the midst of the COVID-19 pandemic. Our research builds on a series of studies conducted since March, surveying more than 16,000 consumers on how their shopping habits and payments preferences are changing as the crisis continues. This report focuses on our latest survey of 2,163 respondents and examines how their increased appetite for online commerce and digital touchless methods, such as QR codes, contactless cards and digital wallets, is poised to shape the post-pandemic economy.

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