Categories: Payment Methods

As Audits Loom, AP Automation Moves To Top Of Mind

You could call accounts payable (AP) the last mile of payments in a way. Or perhaps AP stands for the last mile of automated processes?

It’s no secret companies are scaling, broadening their reach geographically and seeking to tap new consumers. And, as those same companies bring business and currency across borders, their supply chains lengthen and transactions transverse currencies, languages and any number of regulatory hurdles. In the B2B realm, the movement to get suppliers paid on time may become a struggle, mired as AP management is in the paper chase of manual effort.

In the latest Topic TBD, Chen Amit, CEO of payables automation company Tipalti, told PYMNTS’ Karen Webster that automating the AP process lets management focus on, well, managing.

But moving from manual to automated tasks is no easy feat. In transforming the payables process, the executive said, “it goes beyond just the payments themselves. It starts with managing your supplier, onboarding them, knowing them and managing the relationships. It involves managing payments, managing issues with payments, invoice processing, reconfiguration … there are whole processes that go into executing payables … and yet this is a part of the organization that has remained less automated, less invested in software for a very long time.”

As a result of the relative lag in technology adoption, organizations are less adept at getting all the information they need to streamline those supplier relationships, such as tax information or other crucial items that he said “cry for information … it’s a very risky process to pay the wrong people.”

As to why there has not been more momentum in moving beyond manual workflows and what might jolt companies into action, Amit said businesses change with the emergence of new marketplaces, replete with new technology-driven features such as crowdsourcing, and eCommerce becoming a major force in business in general.

“All of these changes make [these] processes so much harder. On top of that, the regulators are putting a heavier hand on tax compliance” and other daily minutiae of doing business.

Roles within organizations are also changing, he said, as chief financial officers and accountants and financial professionals do not necessarily want to spend an inordinate amount of time on managing supplier relationships. They want to deploy technology to solve mundane tasks, he said, to get right down to the business of strategy and innovation.

“All these changes are the key drivers for ingenuity behind the transformation” of manual to automated processes, he said.

There are, of course, early adopters of AP automation, he said — typically younger companies that are smaller, which “look to automate everything,” said Amit.

Beyond the early adopters who embrace new ways of doing things, other firms that find their way to AP automation do so by dint of an approach borne of urgency. These are firms that have failed audits or are about to fail audits. Or perhaps the business is scaling very quickly and it is tough to keep up with managing that growth, he told Webster.

Regardless of what brings companies to mull AP automation, he said Tipalti strives to expose enterprises to the opportunity that lies in increasing efficiencies across supplier management. Whether the aforementioned firms come to automation from pain points or from a desire to innovate, the processes they put in place will eventually be similar.

The discussion turned to cross-border payments, with their attendant complexities. “Cross border intensifies everything so much,” Amit said. “Tipalti rarely sees organizations that are exclusively domestic. I want to say that 90 percent of our customers have some exposure to cross-border suppliers or service providers.” Processes are far flung — ranging from capturing the right data for a payment to ensuring they are sent to the remote bank in a timely manner.

With manual workflows, it can take 10 days to two weeks to address failed payments, while penalties and anxiety accrue. With cross-border transactions come the added concern of making sure a business relationship is not being built with a blacklisted entity.

Tipalti is focused on the middle market, he said. The small auto body shop on the corner may not spend too much time thinking about AP automation, and companies such as Pfizer and Amazon have armies of people dedicated to managing those processes — but in between offers a sweet spot for Tipalti.

Middle-market firms, he said, have experienced growth and have come to understand the risks of supplier management.

Yet the AP function “is not the first line where the organization deploys resources to … it can be the last bit of the organization to be committed to in terms of resources. They understand the pain, but they do not have the ability to execute [on those AP needs], and that is why they need integrated solutions,” said Amit. Verticals seeing expansion in AP automation include online marketplaces, but traditional, older industries, such as insurance and manufacturing, have made strides and now account for 30 percent of Tipalti’s customer base.

Beyond the verticals and across the board, Amit said, there are two drivers that help spur movement toward AP automation. One is that when deploying technology, savings on labor costs are significant, to the tune of 80 percent. The other driver, he said, “is the ability to turn the accounts payable function into a revenue source.” This happens if suppliers are willing to accept a discounted amount, turning a cost center into a top line booster. It might be thought of as creating working capital without having to tap the markets for working capital.

By making early payments, he said, “there is a benefit to the suppliers, and they are also creating a benefit to themselves.”

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New PYMNTS Report: Preventing Financial Crimes Playbook – July 2020

Call it the great tug-of-war. Fraudsters are teaming up to form elaborate rings that work in sync to launch account takeovers. Chris Tremont, EVP at Radius Bank, tells PYMNTS that financial institutions (FIs) can beat such highly organized fraudsters at their own game. In the July 2020 Preventing Financial Crimes Playbook, Tremont lays out how.

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