FinXTech’s Need to Know: Accounts Payable

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When I think of bookkeeping, the first thing that comes to mind is a scene out of “Peaky Blinders:” a sharply dressed man pacing the floor with a heavy leather book, frantically crunching the numbers to figure out which accounts have an overdue balance and of how much.

Today, accounting software digitizes the majority of this reconciliation process. The problem with this? There are hundreds of software solutions a business can choose from — but more poignantly, software offered by a business’ bank seldom falls at the top of that list.

Many banks have historically been slow to service their small business customers. Account opening, applying for a loan or even getting business cards has traditionally forced business owners to head to a branch. The crucial need for bookkeeping software has turned businesses onto disruptors in the space: Intuit’s Quickbooks, Block’s Square software system, PayPal Holdings, etc. These incumbents, and others, are ready to pounce on a market that’s estimated to grow as big as $45.3 billion.

But banks have the chance to claim some of that market.

The Paycheck Protection Program showed small businesses that there were gaps fintechs couldn’t fill — ones that financial institutions could. Bank leaders looking to strengthen the relationship between their institution and their small business customers may want to start with accounts payable (AP) technology.

 If your bank doesn’t already offer small business customers an integrated AP software as a benefit of having a business account, it’s time to seriously consider it.

Some larger banks — U.S. Bancorp, Fifth Third Bancorp — have built in-house AP offerings for their commercial customers. Others, like my $4 billion bank in southeast Iowa, do not — and probably can’t even afford to consider building. Detroit-based Autobooks provides those in-between banks with a platform to help service the AP and invoicing needs of small businesses.

Autobooks lets banks offer its white-labeled software to their small-business customers to manage accounting, bill pay and invoicing from within the institution’s existing online banking system. This eliminates the need for businesses to go anywhere else to handle their AP, and keeps invoicing and payment data within the bank’s ecosystem. More data can lead to better insights, campaigns and products that generate revenue for the bank.

Autobooks receives payments via credit card, Automated Clearing House (ACH) transfers and lockbox transactions. Because small businesses are already working within the bank’s online system, received funds are automatically deposited directly into the business’ bank account.

Paymode-X from Bottomline Technologies is another solution that banks could use. Paymode-X is an electronic, business-to-business payments network that integrates with the existing cash management systems of a bank’s business customers. It eliminates manual initiation and tracking of electronic and ACH payments; its bi-directional connection to accounting systems helps automate reconciliation. Constant electronic monitoring of payments also better traces and tracks payments for banks.

Bottomline Technologies handles vendor outreach and enrollment into the system, and also helps banks identify opportunities to earn additional revenue through the rebates and discounts a vendor may offer to encourage paying electronically, paying early or buying in high volumes.

In addition to offering it to commercial customers, banks can also use Paymode-X for their internal AP needs.

Bill.com has also marked itself as a notable fintech partner. Bill.com Connect is an end-to-end payments management platform that commercial clients access through a bank’s online portal or mobile app. Platform features include a payments inbox to receive, manage and process invoices digitally, automatic forwarding of invoices to the appropriate party, digital signatures and customizable workflows to enable automated approvals.

Bill.com also touts a network of over three million businesses, which could be an attractive benefit for commercial clients looking to expand, partner and more simply get paid.

There is still time and space for banks to plant their flag in the small business space; fintech partners could be an attractive way to break that ground.

Autobooks, Bottomline Technologies and Bill.com are all vetted companies for FinXTech Connect, a curated directory of technology companies who strategically partner with financial institutions of all sizes. For more information about how to gain access to the directory, please email [email protected].

Understanding the New Age of Integrated Payables

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payments-7-25-18.pngUntil now, treasury management solutions have been focused almost solely on helping clients execute payments. These solutions have emphasized simplified payments and payment method flexibility. This can be referred to as Integrated Payables 1.0.

New and disruptive accounts payable automation has enabled banks to offer a more holistic solution, which caters to their customers’ end-to-end accounts payable process while addressing an even broader range of customer pain points. This can be called Integrated Payables 2.0.

Offering solutions that leverage automated processes can provide benefits for commercial banks they aren’t realizing with the legacy solutions. A couple of key benefits that offering Integrated Payables 2.0 technology provides to banks in comparison to traditional Integrated Payables 1.0 solutions include:

Addressing the end-to-end accounts payable process, instead of just payment execution, provides customers with more value.

The first step to understanding the benefits Integrated Payables 2.0 solutions provide is centered on understanding the end-to-end accounts payable process for their customers. This process, regardless of company or industry, generally involves four steps:

  1. Invoice Capture: Lifting data from vendor invoices and coding it into an accounting system.
  2. Invoice Approval: Confirming vendor invoices are accurate and reflect the agreed upon amount.
  3. Payment Authorization: Creating a payment run, getting the payment approved by an authorizer, and leveraging the correct payment type and bank account to use.
  4. Payment Execution: Sending money to vendors.

Within this process, Integrated Payable 1.0 solutions are only serving step #4: Payment Execution. The truth is every payment is the result of an invoice, and the process of making a payment includes all of the steps in between receiving the invoice and paying it. By not streamlining steps leading up to the payment, Integrated Payables 1.0 solutions allow opportunity to improve efficiency.

Integrated Payables 2.0 solutions streamline all four steps by providing one simple user interface that eliminates unnecessary manual processing. By offering Integrated Payables 2.0 solutions, banks provide more value to their customers by addressing the pain each of these manual steps brings throughout the AP process.

Becoming a strategic partner (instead of just a solution provider) to customers drives retention by creating switching costs.

There are a lot of costs associated with manual accounts payable that businesses face every day. Some are very straightforward and easy to track, like processing fees. But there are other costs that are less apparent, but have much broader cost implications on the business. These costs include:

  • Wasted time reconciling duplicate invoice payments.
  • Missed revenue from rebates and early-pay discounts.
  • Value-added projects that never get done.

With the middle-market businesses paying more than 100 invoices every month, costs add up tremendously over the course of a year. When you can eliminate these costs from your customers’ accounts payable process by providing them with an end-to-end accounts payable solution, you will be able to establish a loyal list of customers.

With only a small fraction of businesses currently automating accounts payable, it is clear Integrated Payables 2.0 solutions are still approaching it’s tipping point.

Banks have an opportunity to get ahead of competitors and differentiate themselves by offering a disruptive solution. Then, when their customers get offers from other banks to switch, the switching costs associated with going back to manual accounts payable are likely to dissuade them from making the switch.

Although Integrated Payables 1.0 solutions have been helpful to your customers for years, new disruptive technology is creating even greater capabilities for mid-sized businesses to efficiently pay their bills, and for you to further strengthen your relationships with customers by providing this technology in the form of a white-label solution.

Real Time Payments and the Untapped Opportunity of Corporate Credit Cards

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credit-cards-11-7-16.pngCorporate credit cards are already a great source of revenue for banks. And there’s a lot of room for growth, both in terms of interchange revenue and value that banks can provide to their business customers. If banks look at how their customers currently use corporate credit cards, they’ll find an untapped opportunity to expand their usage.

Using corporate credit cards for accounts payable (AP) has obvious benefits: Businesses can time their payments to vendors more precisely, take advantage of the working capital extension available through their credit line, and benefit from rewards and cash back programs. In addition, compared to checks—the most common way in which businesses make AP payments—credit cards have very low occurrences of fraud.

The use of corporate credit cards in AP should be an integral part of a business’s cash management strategy, but it is not. MineralTree recently conducted a survey to assess the current state of corporate credit card use in the accounts payable function and uncover reasons why more AP spend is not being moved to corporate cards. You can read the full survey report here.

Key Survey Findings
Over a two-week period in late summer 2016, almost 200 finance and AP professionals completed an online survey exploring the state of credit cards in their business. Some of the most significant findings of the report include:

  • More than one-third of respondents are not using corporate cards for vendor payments.
  • The reasons businesses give for not moving more AP spend to commercial credit cards is varied and plagued with misconceptions.
  • Impacting the bottom line is the number one benefit cited by respondents for moving more spend onto commercial credit cards.

The Shift in Accounts Payable
To truly understand the state of credit card use in AP, respondents were asked which types of payments were made on their corporate credit cards: travel and expense payments, vendor payments (AP), or both. Only 50 percent of respondents use cards for both. More than one-third of respondents only use their cards for travel and expenses.

The chart below shows the number of vendor payments made by businesses who exclusively use their card for travel and expenses. About 80 percent of respondents make 50 or more vendor payments every month. Businesses who make more than 50 payments per month can strongly benefit from AP and payment automation and the ability to easily pay their vendors with credit cards.

For those businesses already using cards, adding AP spend onto cards is relatively simple. Finance policies are in place and department heads know the process for submitting and recording expenses.

These businesses can easily expand their policy to include vendor payments and improve their AP process at the same time. Ultimately, this will increase the “card-able spend” and the finance team will add additional value to the business by bringing in significant rebates. At a modest 1 percent cash back, companies earn $10,000 for every $1 million in card spend. Banks should recognize this as a significant opportunity and start marketing cards for AP purposes. Offering complete, packaged cash management solutions that solve problems as business clients see them will encourage them to move AP spend onto cards. The banks who do this early will find an untapped opportunity for new revenue through merchant fees and use of the card’s credit line.

A Remedy For Commercial Client Headaches

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Banks can solve a major headache for commercial clients by offering business services to help manage accounts payable, accounts receivable, tax collection and other payments. In this video, Matthew Hawkins of Mineral Tree explains how this approach can strengthen the client relationship while generating additional fee income for the bank.

  • How the Bank Gains by Offering Business Services
  • Benefits for the Client
  • How Technology Providers Can Help