According to the “2020 State of Accounts Payable Report,” Respondents indicated that on average they are using electronic payments to process their payments 56% of the time (vs. 52% in 2019), compared to paper at 44% (vs. 48% in 2019).
You know the feeling when you’ve been working on a jigsaw puzzle for countless hours and you place that final piece snugly in its spot, forming a complete picture that matches the image on the box perfectly? You sit back, admire your work, and experience that sense of accomplishment that can only come with a job well done.
Now, imagine feeling that way about your on-going accounts payable (AP) automation project – envision automation spanning the entire invoice handling process from receipt to processing all the way through payment. It’s possible with payment automation.
What is payment automation?
Payment automation is an integrated solution that allows organisations to make check, ACH, virtual card, and wire payments. This takes automation a step further than the “ok-to-pay” that purchase-to-pay (P2P) solutions provide by issuing payment to the suppliers once invoices are received and processed.
Why is payment automation beneficial?
Payment automation removes manual activities from the final step in the AP process to bring the entire cycle full circle. This creates a better link between your procure-to-pay (P2P) system and your payments solution and increases your automation levels, which extends nine major benefits:
Faster Cycle Times: For AP teams, time is literally money. The more automated and efficient a process is, the more return the company will see on their investment and the faster suppliers will get paid. This also means cost savings from faster invoice processing and capturing more early payment discounts.
Cheaper Transactions: Electronic payments are far cheaper than paper checks. The average cost of processing and paying an invoice is $20, representing a great opportunity for businesses of all sizes automating their AP process and moving to electronic payments.
Fraud Prevention: Checks continue to be the payment method most frequently targeted by those committing or attempting to commit fraud. According to the “2020 State of Accounts Payable Report,” 57% of respondents say they have received a fake invoice or experienced fraud in some way. An estimated 81% of companies were targets of payments fraud in 2019, notes the AFP Payments Fraud and Control Survey. The regularity with which this occurs only strengthens the importance of ensuring your sensitive data is absolutely secure.
Reduced Errors & Duplicate Payments: Errors in the AP process eat up valuable time, erode supplier relationships, and can result in duplicate payments. Best-in-class companies that leverage automation can reduce the percentage of duplicate and overpayments.
Increased Visibility: By moving to automated, electronic payments, you can capture more financial data to support advanced analytics and process improvement. Payments are becoming a strategic focus area to help finance executives better understand, predict, and forecast their cash flow. This visibility also opens the door for strategic tools that optimise cash position, like supply chain financing and dynamic discounting.
Additional Discounts: According to PayStream Advisors’ AP & Working Capital Report, 31% of respondents said manual routing of invoices for payment and approval stood in the way of an early-payment discount. Payment automation can compress the processing cycle and enable organisations to capture more of the discounts available to them, optimising their working capital.
Fewer Supplier Inquiries: AP spends a lot of time responding to supplier inquiries around invoice and payment status. Automating the payment process enables organisations to provide suppliers with real-time visibility into transaction statuses, via a portal, thereby reducing time spent on fielding supplier inquiries and improving supplier relations.
Increased Supplier Satisfaction: Automating payment processing results in shorter payment cycles, which means that suppliers get paid faster and can decrease their days sales outstanding (DSO). This goes a long way in improving relationships with the supplier base.
How does payment automation affect the future of AP?
AP is changing rapidly – this is not new information – industry experts have been saying for a long time that the surge in automation and technology is forging a more strategic future for AP professionals. Payment automation is another example of a step in that direction. Ardent Partners says, “AP sits in an ideal position today to take the reins of cash management by implementing basic strategies that can augment the treasury department’s processes, and become a true strategic partner in managing enterprise liquidity.”1 So, finance leaders should think about how to transform their AP departments to be the hub of financial data and cash management, while arming their teams with the skill set to support the business in this way.