The historically manual nature of accounts payable (AP) payments is holding back progress across industries.
It ties up funds in largely legacy processes, including the nigh-unsinkable iceberg of B2B paper checks.
But particularly within today’s fast-paced business world, where companies are constantly seeking new ways to streamline their operations and increase efficiency, modernizing the AP department would appear to offer an easy win.
So why is it taking so long for business payments to go fully electronic?
“Checks are going to continue to die the slowest death,” Ernest Rolfson, CEO and founder of Payments-as-a-Service solution Finexio, told PYMNTS CEO Karen Webster.
“The largest corporations in America are using some very old, very reliable monolithic systems to manage their treasury function, in this case, their AP processes that decide who to pay and how to pay — and they’re still relying on those workflows,” he added.
Still, Rolfson said his perspective on money’s movement from paper payments to digital is generally positive as he sees the current state of AP innovation and adoption today at “around a six” out of 10.
“What holds me back is that 40% of the spend in the country is still paper check and manual process-based,” he said. “AP payments are still very manual.”
A key pain point in the digitization of the AP department is simply the lack of software to enable and facilitate payments for large corporates, despite the growing availability of treasury capabilities being offered by banks.
“In order for [firms] to take advantage of all the treasury products that a bank has, they need to somehow brute force all their payees, suppliers and vendors into getting enrolled, set up and secured to accept their payments,” Rolfson said. “These are major stumbling blocks that many businesses just don’t have the resources, knowledge, competency and expertise to help facilitate.”
There separately exist many process-based barriers to adopting electronic payments that include supplier reference identification, supplier and corporate change management, as well as the ever-present risk — and fear — of payment fraud.
Rolfson emphasized that “a very real concern” behind the hesitation of larger enterprises to adopt electronic payments is the perceived risk of payment fraud.
That’s because 63% of businesses have experienced check fraud in the past year, while 30% have experienced automated clearing house (ACH) fraud — making its prevention top of mind for businesses and causing them to view digital AP solutions through a skeptical lens of, “how can I be safe and secure, what does my IT department need to do and know,” Rolfson said.
“But let’s be honest, ACH is candidly way more susceptible to fraud” than electronic AP solutions, he said.
However, just as corporate credit cards and credit card processing more broadly have been commercialized successfully across the business landscape to the point where corporates no longer give it a second thought, Rolfson said he sees the same thing eventually happening with electronic AP tools.
“The big opportunity is for it to be seamless and just work,” he said. “The usability component is critical and largely missing. These are things that take time, and this industry is very slow. It’s a generational change that is only just happening.”
As more businesses get exposed to the benefits of modernizing their AP functions and start using electronic payments in their own business, there is the potential for a slow-moving, but powerfully foundational, network effect to take hold.
After all, electronic payments not only make reconciliation easier for both sides of the transaction, but they also eliminate the uncertainty of “when will I get paid” inherent to waiting for a physical check in the mail, or refreshing an account to see whether one has been cashed yet, he said.
Given ongoing and historical hesitance around digitizing AP processes, education and support is crucial in helping businesses navigate the transition from paper to digital payments.
“Candidly, it’s about handholding,” Rolfson said.
He explained that critical to convincing corporates to switch from paper checks to digital payments is helping them “unlearn all the manual” processes that no longer need to be done by an employee.
“It’s a big learning change,” Rolfson said. “You have to unteach your brain to understand the nuance of what new technology can do. AP is a very strategic and complex function for the office of the CFO, and it has to do with vendor terms negotiation, vendor onboarding, sometimes vendor diligence components, contract management, and based on the complexity of invoice and PO approval and review process, they are also a first line resource against preventing fraud.”
That’s where predictive and generative artificial intelligence (AI) tools can play a part in freeing up time for the finance department to work more efficiently and take on more responsibilities.
“We’ve been using AI tools for years,” he said. “It’s more in vogue to talk about it now, so we are.”
Rolfson said Finexio has over eight years of internal data to draw from that’s been specifically curated over time to be leveraged within bespoke predictive models that can better support customer acquisition and marketing approaches, enhance fraud prevention and boost transaction security and acceptance, among other use cases.
“We are doing some very interesting things around fraud prevention and identification that the entire industry could take advantage of,” he added.
While there are still challenges to overcome, the benefits of electronic payments, including increased efficiency, cost savings and better relationships with vendors, are growing increasingly clear, he said — businesses just have to know where to look.
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