In December, I shared some of my finance predictions for this year (see "2022 Fintech and Payments Predictions"). The topics ranged from remote work’s impact on finance tools, how the current work shortage would accelerate the automation of the back office and the emerging importance of analytics in accounts payable (AP) automation.
But the item most people remarked on was related to supplier adoption of digital payments. Most businesses are interested in converting more payments to electronic methods. It is faster, easier and less expensive to manage for everyone. But adoption still is not as broad-scale as it should be.
Here are a few key reasons and how you can overcome them:
The Status Quo
The pandemic was a big driver to automate AP because of remote work requirements. Yet, in a recent survey about companies’ AP practices, 45% of respondents indicated they still use paper checks to pay their suppliers over half the time. When those specific respondents asked what drove their decision, 60% cited “ease of use,” 44% cited “The cost of payment method” and 38% said “How we’ve always done it.”
These responses are surprising given the high costs and operational inefficiencies involved with checks. Some organizations must take a closer look at their paper-based payment processes to confirm they are really meeting the needs of the business.
Awareness
Many suppliers are unaware that their buyers want to pay them digitally. And a lot of buyers are unaware their suppliers prefer the same. In some cases, increasing adoption of digital payments is as simple as buyers and suppliers letting one another know their preferences.
Security Concerns
Some suppliers are surprised to find out that digital payments are more secure than checks. According to the “2021 AFP Payments Fraud and Control Survey Report,” 66% of companies paying by check experienced real or attempted fraud, compared to 34% using ACH debits and just 3% using Virtual Cards.
There also are concerns with sharing bank account information. Virtual Card payments eliminate this objection. All the buyer needs from the supplier is an email address.
Staff Capacity
A business’s capacity to contact and onboard vendors to accept digital payments can also limit adoption. This can be easily addressed by AP solution vendors that offer comprehensive services to continuously onboard suppliers to accept digital payments.
Complex Supplier Payment Requirements
Some suppliers with a large volume of payments require specific payment delivery processes. For example, they might require payments to be made through an automated phone line or web portal. In other instances, large suppliers with multiple operating units might require companies to call or enter in payments separately for each one.
Many suppliers are unaware that their buyers want to pay them digitally. And a lot of buyers are unaware their suppliers prefer the same.
Buyers and their payment providers can work closely with suppliers to address these specific requirements, and set up electronic payments in the way that works best for them. The key is that the payment provider takes on handling and automating the payments, so the buyer’s AP team isn’t saddled with additional administrative work.
Accessing Remittance Information/Updating Payment Information
Some suppliers that make the transition from checks to ACH are disappointed that the remittance information doesn’t appear with the payment. This requires their AR departments to match them up manually and also can lead to a lot of calls for the buyer asking what a certain payment is for. Electronic payments also require updated payment information—and that responsibility typically often falls on the supplier.
Supplier portals can address both of these issues by providing suppliers with a single point to update their information for multiple customers while also presenting a consolidated view of their accounts receivables, all payment remittance information, and valuable analytics on things like efficiency, DSO and Credits Outstanding.
Virtual Cards also can help here. The Virtual Card number is delivered with the remittance, through email or the supplier portal.
Unfamiliarity with Virtual Cards
Virtual Cards are gaining in popularity for B2B payments, but some suppliers may not be familiar with how they work. They are processed just like credit cards, but are valid for one-time use only, making them one of the most secure payment methods available.
They also provide faster payment and increased visibility. Once suppliers see how easy Virtual Card payments are, they often encourage them from buyers.
AP automation had been on a slow and steady rise, until the last 18 months, when the pandemic forced many businesses to quickly update their manual, paper-based payment processes. 2022 will carry that momentum forward as more buyers look to convert more payments to electronic methods and take advantage of all the other efficiencies AP automation provides.
Vijay Ramnathan is the president of MineralTree, a company specializing in AP and payment automation for middle-market and enterprise-level companies. A self-professed fintech and payments geek, Vijay has spent over 20 years in the space including strategic leadership and operational roles at companies, including US Bank, Fifth Third Bank and COMDATA/Fleetcor.
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