Key Things to Know About Payment Automation for Business Payments

Karla Friede
Karla Friede
CEO, Nvoicepay, a payments automation company and CoupaLink partner

Karla Friede is the Co-Founder and CEO of Nvoicepay, which transforms the massive and expensive effort that goes into paying suppliers into a simple and automated solution. Nvoicepay optimizes electronic invoice payments for enterprises with intuitive cloud-based software.

Read time: 12 mins
Cartoon chess board with a money sign.

Fintech ChessPayments don’t get a lot of attention in the C-suite. That’s not too surprising, since making payment happens long after the important strategic decisions have been made. As long as cash flow is good, and vendors aren’t calling looking for their money, most executives assume all is well.

But, all is not well, and it’s been decades since we’ve seen anything new in this area, so there hasn’t been much companies could do to improve. However, just as with consumer payments, financial technology companies, or Fintechs, are reinventing business payments. Here are the top seen things executives to know to understand how big the problem is, and correspondingly, how big the opportunity is around automating B2B payments:

1. B2B payments in the US today are still primarily paper-based. Over the past couple of decades, we’ve seen such an incredible amount of automation in sales and marketing, that many executives don’t realize the extent to which accounts payable is still a paper-based world. We’ve had electronic payment methods—ACH, credit card and wire—for such a long time that people assume that their organizations are taking full advantage of them. That’s not the case.

While we’ve made some progress, according to the Association for Financial Professionals’ 2016 Electronic Payments Survey, US companies still make an average of 51 percent of their payments by check. That means most AP departments are managing a patchwork of payment methods. A payment mix that is 50 percent paper-based with some ACH, some credit card and some wires is far from efficient.

2. Checks are more time consuming and expensive than you realize. When most people think about the inefficiencies of checks, they think about the printing, signing, envelope stuffing, stamping and mailing. That’s the obvious part--and the easier part because it at least lends itself to a predictable work flow.

What happens on the back end is less predictable and perhaps even more time consuming. At the very least, checks have to be reconciled manually. That’s if all goes well—if the payment is correct, arrives in the right hands and is deposited in the bank in a timely manner.

That’s a big if, because payment error rates are high—up to 30 percent in some industries. When people compare the cost of checks to electronic payments, they’ll see that checks cost about ten time more, but that’s based on upfront check costs. Staff time spent chasing down and fixing errors on the back end is what really drives up the cost of checks, sometimes into the hundreds of dollars for a single erroneous payment.

3. People have better things to do. As organizations grow, so does the number of checks they’re handling. Up until recently, the only solution was to throw people at the problem.

The early adopters of payments automation tend to be fast growing companies faced with the prospect of hiring people just to handle a non-value added task like check processing. That’s a ridiculous idea in 2017, so they look for a better solution.

Payment automation software is designed to take entire payment workloads and make them simple. The software takes payment instructions out of the company’s accounting system and makes the payments on behalf of the company. It addresses 100 percent of the payment problem, freeing up your team to focus on value added activities such as financial planning and analysis.

4. Banks don’t offer automated payment solutions. Most executives probably think if you need help with payments, you go to your bank. That’s understandable, because until very recently, there’s never been any place else to go.

While you may have a great relationship with your bank as a trusted source of a depository for funds, banks are not historically good at technology. What banks can offer are a variety of payment products and programs—ACH, credit card and wire transfers for international payments. They don’t offer anything to pull all of those payment products together in an automated workflow, and they’re typically not a cost-effective provider.

5. You can manage cash with extreme precision. Cash is the lifeblood of any organization, but organizations have long accepted that they don’t have great visibility into, or control over the timing of payments. That’s not surprising when you’re making half your payments by check.

Managing float is the time-honored way to try to manage cash, but once a check goes in the mail, you don’t know what’s happening with it until it clears your bank account or until you hear from someone that it didn’t get there or the amount was wrong.

Organizations that move to payment automation solutions can see where their all of their payments are. They have visibility into their cash position at all times. They can hold payments longer, and pay just minutes before they need to. They can manage cash with much more precision than they've been used to, or even have imagined.

6. Payments are easy to automate. Because they're so used to the workload around ERP systems or other enterprise-class automation, when people think about finance solutions they assume six to 12-month implementation cycles. Payment automation, because it's cloud-based and because it uses information already in the accounting system, is simple to implement. It takes about 12 hours of a company's time.

People also think about automating things serially. In AP, the common wisdom is to start automating with invoice receipt and processing, and then think about paying digitally.

The opposite is better because payments are far easier to automate—it doesn’t matter what’s upstream from them. You can take the cost savings—typically about $5 a payment--and invest it in automating the front end. You get a quick win, and the resources to attack bigger, harder problems.

7. Automating payments is an imperative. Economists and the Federal Reserve are predicting two percent GDP growth for the next two to five years, and those projections seem reasonable.

In an economy that's not growing rapidly, it's tough break out and beat that growth number. One way to do it is to cut costs. Payments automation saves about 75 percent of AP costs. That improves the bottom line, but it’s nowhere near as hard as driving growth.

Executives don’t think much about payments because they’re tactical and they have to happen, and the process is seen as a cost of doing business. Companies have been living for so long with the same broken, non-value added process they’ve stopped thinking about it and they’re unaware that there is now a better way.

Newer companies that are thinking about scaling payments for the first time are already there. In a slow growth environment, automating repetitive tasks is one way to grow the bottom line, while also opening up an advantage over companies that continue to do things manually. In that regard, automating payments is a golden opportunity you probably didn’t even know existed.