Next-Gen AP Automation

Deep Dive: How Utilizing AP Automation Tools Can Help SMBs Endure Financial Strains

Cash flow is king, especially for small- to medium-sized businesses (SMBs). These firms often have less funding than their larger counterparts, and this makes it critical that they operate as efficiently as possible and gain visibility into their working capital and expenses. These smaller players must ascertain exactly how much cash they have on hand and how much they can afford to spend while working to meet upcoming obligations. This means they also need to seek opportunities to trim costs, as failing to do so could cause significant problems for their operations. Most U.S. SMBs go out of business within five years, according to a 2019 study, and it found that issues with managing or understanding cash flows factored into 82 percent of these closures. 

The onset of the COVID-19 pandemic made matters worse, with some SMBs seeing their savings run dry as consumer purchasing drops off or ceases entirely. Consumers have been tightening their own belts, and some companies’ service models could not easily adapt to stay-at-home orders and public health concerns. Twenty-four percent of U.S. SMBs reported in a late-March poll that they had closed temporarily, and 43 percent anticipated going out of business within six months. Many have been facing striking new uncertainties: 80 percent reported feeling “comfortable” about their cash flows in Q1 2020, but only 59 percent said the same in Q2.

These strains have eased somewhat in the summer, as certain states permitted various businesses to reopen. Many consumers are again earning steady paychecks, while others are leveraging their stimulus fund disbursements to make more purchases. Uncertainty continues, however, as new outbreaks are prompting some states to pause their reopenings and as consumers prepare for their federally issued $600-per-week unemployment benefits to end in July.

Money, therefore, remains tight, and SMBs need fast and precise insights into their finances and processes to help them make more informed spending decisions. Manual, paper-based AP procedures can stand in the way of this, though, because these methods require staff to spend time and resources handling invoices and typing details into company systems. These slow processes make it difficult for AP professionals to quickly pull up information on payment obligations, and they also present plenty of opportunities for human error. This month’s Deep Dive examines how upgrading to automated AP processes can help SMBs gain deeper insights and make their operations more efficient and less expensive. 

Cutting Out Inefficiencies

SMBs are more likely than larger firms to have old-school AP methods that cause undue frictions. These small businesses may not have set up supplier portals or other systems that enable vendors to submit invoices in digital or PDF formats, forcing suppliers to send paper documents via postal mail. A 2019 report found that SMBs reported receiving approximately 48 percent of their invoices as paper documents, compared to 41 percent of mid-market businesses and just 22 percent of large firms. 

Companies receiving paper invoices must first extract and record data from these documents, meaning they cannot quickly flow the relevant information into their systems. Some companies use tools that automatically identify and pull necessary details, but AP professionals at many smaller firms must read the invoices and type the details into internal systems. Eighty-six percent of SMBs recently reported that they used manual methods to enter invoice data into their accounting, AP and ERP software, for example, while only 22 percent of large companies did so. Businesses may be interested in finding faster alternatives, however. Fifty-two percent of SMBs said in a 2019 report that struggling to approve invoices fast enough to pay vendors on time was one of their top three AP challenges, while 42 percent highlighted issues with approving invoices quickly enough to earn early payment discounts. Thirty-seven percent said invoice processing was among the three most inefficient parts of their companies’ financial operations.

Legacy AP processes are often a drain on businesses’ budgets, as these manual methods cost employees time and create opportunities for human error. Sixty-five percent of SMBs in one report said a key B2B payment friction their treasury departments experienced was that “manual payment generation workflows are error-prone and time-consuming.” Automating these procedures could help, however. Such tools can automatically pull data from received invoices, match the details against purchase orders to check for errors and route the invoice information through company systems for payment approvals. SMBs utilizing manual AP processes are often unable to catch invoice duplications, as well. Those without systems to detect such errors may pay twice, and these mistakes can cost SMBs more than $12,000 per month on average. AP modernizations can help prevent this, reportedly cutting costs by 30 percent to 50 percent.

Making Informed Payment Decisions

Faster AP processes save SMBs cash and also offer them more flexibility regarding vendor payments. Buyers with more efficient and insight-driven AP processes possess the details necessary to make informed spending decisions. Automating AP processes can save SMBs time processing invoices and sending funds, which then enables them to choose to pay their vendors faster. This, in turn, can earn SMBs early-payment discounts or position them to negotiate for benefits from vendors.

These discounts and perks can be especially valuable to SMBs facing budget strains, but firms do not always want to pay early. Reviewing AP data could reveal to SMB buyers that the interest earned from keeping money in their bank accounts longer outweighs the early-payment benefits vendors offer, for example. 

SMBs generally have fewer resources than larger companies, meaning they will not always be able to bounce back from financial strategy mistakes. Careful decision-making is thus all the more important for these companies. The economic fallout resulting from the pandemic has further pressured SMBs to closely examine their cash flows and ensure they are leveraging any and all savings opportunities, either by paying vendors early or holding on to funds for longer. Relying on AP automation tools could ultimately help SMBs build more resilient, efficient operations. 



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.