Turn your AP department upside down

Turn your AP department upside down

By Tory Passons, Vice President, U.S. Bank Corporate Payment Systems

Tory Passons, Vice President, U.S. Bank Corporate Payment Systems

Sometimes in life and business, we keep doing the same thing over and over again without really asking why or looking for a better way. Many companies I’ve talked to feel their AP departments live very much in this space. They know there’s a better way in our innovative new world but they don’t have the time and resources to figure it out. If we can simply hail a ride share with our phone, or order a box of light bulbs with our voice and have it on our doorstep in two hours, why can’t we revise our check heavy AP departments?

Consider the upside-down fire for a moment. We have all been taught there are two ways to start a fire.

They’ve worked fine for centuries but they burn from the bottom up. They don’t burn that hot and you have to mess with them a lot to keep them going. It’s how I was taught and it’s how the majority of the world does it. But that doesn’t make it the best most efficient way to build a fire.

The upside-down fire, however, burns from the top down. It burns hot and coals light the layer below keeping a consistent hot fire going for hours.

I believe there is a trend happening in B2B payments I liken to the upside-down fire pointing us to that better way. There are several solutions that continue to come up in my conversations that are important to address, including AP automation and a newer trend intelligent payables.

AP automation is an end-to-end AP solution from procurement to electronic invoicing to payment. This is typically for larger companies with a high volume of invoices flowing through their systems who also have more leverage on their vendors.

Intelligent payables are for customers that want to leverage their existing invoice process and outsource payments/supplier management allowing the third party to enable and choose the best method of payment.

Historically, companies have pieced together solutions and backfilled their challenges by adding headcount – making AP departments into pure cost centers. FinTechs are changing that story and turning AP departments into revenue generators while streamlining operations. Intelligent payables are much more than payment executions but include vendor enablement turning checks into all types of electronic payments. Cost savings come from moving checks to ACH while revenue generation comes in as check and ACH payments are converted to cards.

There are three ways payments are handled today:

1. Direct payment from the buyer to the vendor where the AP department works with the vendor on what type of payment to send and they execute on it

2. AP department partners with a third party to execute payments on their behalf through a consolidated payables file – this often times is a bank executing on payments where payment type has been determined

3. AP department partners with a third party to not only execute payment but also figure out the best way to pay – a third party manages vendor and dynamically changes payments to the best possible method

There are a lot of benefits to moving to electronic payments. The trend toward electronic payments is quite exciting as it will create a lot of opportunity for improvements so it’s not surprising we’re seeing a lot of FinTechs entering this space. FinTechs go where the trends are and they do a phenomenal job of capitalizing on those trends through efficiency and a redefined user experience.

The huge benefit of capitalizing on electronic payables creating intelligent payables is corporate AP departments are able to evolve into divisions that are less tactical and much more strategic in nature.

"AP department partners with a third party to not only execute payment but also figure out the best way to pay – a third party manages vendor and dynamically changes payments to a best possible method"

Intelligent payables are the future of corporate payments. Moving to intelligent payables has multiple benefits, they help:

•  Optimize a company’s spend very quickly by decreasing check volume and expense
•  Gain more rebate as card spend increases to 30 to 40 percent of spending depending on the industry
•  Lower cost by putting 50 percent of spend on ACH
•  Allow somebody else to manage vendors with both the client and vendor’s best interests in mind
•  Turn the cost center into a profit center

This space is evolving fast and we are working diligently to stay a step ahead so we can help our customers and prospects. There is no time to pause and no time to keep doing things the old way.

What action should you take? Here are five things you should do in and for 2019:

1. Assess your spend portfolio to see how you’re paying today

2. Start talking to your bank and FinTechs on how this can be solved for you specifically

3. Keep an eye out for what’s coming next. Change is happening

4. Look at cost vs. revenue of having 50 percent ACH and 30 to 35 percent on card

5. Be bold

By incorporating AP automation and/or intelligent payables is a game changer. We can either continue to build inefficient fires that don’t give off much heat and need a lot of attention. Or we can move into a world that better resembles the upside-down fire. It’s risky and a bit scary because it’s new. The first time I tried the upside-down fire in my old 1929 home I knew for sure it wouldn’t work. Why did I try it? The old way wasn’t burning hot enough and smoke would fill my home. I had two choices. Try something new or shut down my fireplace altogether. To avoid embarrassment, I tried it with nobody around and sat back in awe. It burned for two and a half hours hot and beautiful without me touching it. It changed my life as now I get to dissect everything I once thought was standard and working to find the better way. Go turn your AP department upside then sit back and enjoy the glow of efficiency, rebate, and cost savings. 

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