Old Habits Die Hard For Accounts Payable

Accounts payable (AP) professionals often use established — if unsatisfactory and possibly outdated — payment methods, mostly because that’s just the way it’s always been done.

According to the July Payables Friction Playbook, paper checks are AP departments’ seventh-favorite way to pay suppliers — 63.5 percent are satisfied with them, yet 80.8 percent use them anyway.

Checks have slightly lower satisfaction levels than the average (69.3 percent), which might have to do with paper’s longevity. AP professionals don’t view checks as far better or worse than other payment methods. Speedier methods like same-day ACH (83.0 percent) and ACH (76.6 percent) elicited the most satisfaction.

Indeed, speed was cited by 75.6 percent as the reason why they reported satisfaction with same-day ACH. It was also convenient (65.9 percent) and the largest share (25.9 percent) of suppliers preferred to be paid that way. While cryptocurrency had the lowest levels of satisfaction, it ranked fairly high for data security (42.9 percent) and fraud detection (33.3 percent).

In addition to being easy to use and convenient, digital wallet and ePayables have additional benefits cited by AP professionals, with 30.3 percent of those who are satisfied with the latter noting improved fraud security and 29.4 percent doing the same for improved data security. These sentiments are repeated by 31.3 percent and 33.9 percent of respondents who are satisfied with digital wallets, respectively. Enhanced data security appears to be one of digital payment methods’ biggest draws.

Despite rating other payment methods more satisfactory, 80.8 percent of AP professionals pay through paper checks. The next most popular methods are reimbursing suppliers via ACH (63.8 percent), credit cards (48.2 percent) and cash (45.2 percent).

After those top four, there is a fairly steep dropoff in usage. Just 11.4 percent use ePayables and 11.1 percent use digital wallets. Even same-day ACH, which received high marks from AP professionals and suppliers, was only used by 13.0 percent.

Annual revenue and volume of invoices processed influence payment methods. A high proportion (85.1 percent) of those that receive 2,000 to 5,000 invoices per month use paper checks to make payments. Firms that receive more than 20,000 invoices per month are also very likely to use paper checks (81.2 percent), and counterintuitively, the most likely to pay suppliers in cash (62.2 percent).

This pattern plays out by company size, as well. Firms that generate $100 million to $500 million in annual revenue are far more likely to report paying with checks (91.7 percent) and cash (68 percent).

AP firms aren’t necessarily giving suppliers what they want, though. Just 14.2 percent say their suppliers wanted to be paid through paper checks and only 6.2 percent prefer being paid in cash.

The accounts payable landscape is still very analog, though. Most (72.4 percent) businesses receive invoices via postal mail and 43.8 percent receive invoices by fax.

Fewer firms receive digital invoices, especially eInvoices or those sent through supplier portals. As many as 67.2 percent of firms email for invoicing, but just 42.6 percent receive eInvoices.

AP professionals understand that digital alternatives are out there, though, and they appear to be willing to make the switch. A majority (56.9 percent) expressed interest in eInvoice solutions to improve at least one area of receipt, approval or processing. Automatic order matching, which uses algorithmic tools to pair sellers with buyers at certain price points, also had fairly high interest (43.8 percent). One-quarter (24.6 percent) would like to implement AI systems.

Interest in eInvoices and automatic order matching is especially strong among AP professionals from firms that receive higher monthly invoice volumes. According to the study, 62.8 percent of businesses that receive more than 20,000 invoices per month are interested in eInvoice solutions.

Businesses that receive lower value invoices express the greatest interest in eInvoices; 61.8 percent that receive invoices for less than $500 on average are interested in eInovices. More than half (53.5 percent) of these respondents would also consider implementing automatic order matching, compared to 34.3 percent of those from firms whose average invoices are valued at more than $2,000.

To overhaul payment methods, both the supplier and buyer sides of the payments equation have to overcome inertia and sticking to habitual processes. Efficiency has to be created for both sides rather than dictated from either party. “If you’re not a company that has a lot of scale and a lot of ‘stick,’ for lack of a better term, you’re not in a position to mandate to your suppliers to do something differently,” said Matt Clark, president and COO of Corcentric, in an interview with PYMNTS.