The AP/AR Modernization Mandate: From Self-Assessment to Better B2B Payments

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Modern technology makes modern business strategies possible.

And with the news on Thursday (April 18) that Mastercard is bringing its commercial cards to mobile wallets, gaining a competitive edge by embracing B2B payments innovation is increasingly top of mind for both buyers and suppliers.

After all, against a backdrop where many firms lack modern B2B payment offerings and rely too much on legacy systems, providing a best-in-class payments experience can frequently mean the difference between bills that are paid in a timely manner and relationships that eventually go south due to an ongoing technical disconnect.

A good user experience can help create a more profitable and loyal B2B partner base, and due to their digital interactions outside of the B2B experience, both buyers and suppliers today have come to expect a strong, seamless, and increasingly personalized B2B payments process.

But many firms, in part because they are so cognizant of the importance of their B2B payment mechanisms to their businesses operations, are reluctant to challenge the status quo – and at this point, B2B businesses don’t even know how to begin modernizing their accounts payable (AP) or accounts receivable (AR) functions.

At the same time, new B2B payments features and functionalities are increasingly built atop what are typically antiquated legacy systems, creating what can best be described as a mess.

That’s why performing a self-assessment is a key first step for firms considering undertaking a digital transformation of their AP and AR functions. As for the last step? It is a better B2B payment experience — for all parties.

Read more: The Cost of Legacy Payments in Light of Innovation’s ROI

It’s Time to Sink the Sunk Cost Theory of Legacy Payments

Many businesses are reluctant to change technology that provides a foundation for their operations. They’re often afraid of new, unknown vulnerabilities that may expose them to fraud and cybersecurity issues. Even one small change could trigger much larger issues, and compounding the situation is that many B2B businesses haven’t undertaken a true modernization of their payments mechanisms in years.

“There’s always a technical lift — and it’s not just the money and resources, it’s often the human capital as well that needs to assist in getting these changes implemented,” Darrell Walsh, CFO at The Clearing House, told PYMNTS.

Walsh explained that legal, finance and IT are often stakeholders in process modernizations, and that this can lead to a type of “institutional inertia” where businesses tend to ask, “Why change?” rather than make the necessary changes that will benefit them in the future.

That’s why, when performing a self-assessment, firms need to do three things. The first is identify systems that may no longer be compliant with current regulatory standards. The second is to identify any existing B2B payments mechanisms that may impact the company’s security. The third is to identify those systems that are most crucial to the organization’s operations for modernization.

 As Kat Battle, product manager for Complete AP at Bank of America, told PYMNTS, “More and more organizations are recognizing the need to update and modernize what has historically been a manual, paper-based process — but one that’s also very mission critical to the business function.”

And while many decision makers may fear that heavy IT spending up front will put a pressure on their short-term profitability, at the end of the day, AP and AR modernization frequently translates into time and cost savings as well as supports a more holistic view of financial operations, one that ideally leads to improvements in business profitability and productivity.

See also: 3 Ways Legacy B2B Challenges Are Shaping Tomorrow’s Biggest Opportunities

Overcoming Institutional Inertia by Investing in Innovation 

One of the keys to a B2B payments modernization is greater access to payments data. Without proper, well-structured data, firms are operating without a clear picture of not only what their customers want out of the B2B payments experience but are also shutting themselves off from valuable insights about their own financial and working capital situation.

“On the technology side, if you’re in a place now where your in-house system looks like it did 20 or 30 years ago, this is a chance to make a huge leap forward,” Ben Lamm, COO at Capital One Trade Credit, told PYMNTS.

What a modern B2B payments system looks like could include things such as being flexible and configurable, able to support broader payments product sets, something that is built to expose robust data via APIs and/or event- based architectures as well as able to integrate with other modern applications and to handle variable workloads seamlessly. And, of course, two of the main benefits an upgraded AP/AR function should include is the ability to provide both short and long-term scalability as well as greater cost efficiency.

“If you can even save some eight or 10 people’s worth of work at the end of the quarter and finish and close the books within 24 to 48 hours, that is priceless,” Karandeep Anand, chief product officer at Brex, told PYMNTS.

For further reading, nsights in “The Future Of Payment Innovation Report,” a PYMNTS Intelligence study, unpacked how firms with revenues between $500,000 and $100 million can use payments innovations to future-proof their business.