The digitization of payments has led businesses on a quest to create more paper-free back office administration, and the COVID pandemic only served to accelerate the need to streamline contact-free transactions.
Integrated financial technologies have been around for some time, with the airline industry leading the way in the mid-20th century: Airlines had reservations systems that were accessible to other airlines. These reservations systems were also available to travel industry partners like hotels and car rentals. These integrated systems not only facilitated reservations, ticketing, and payments but provided inexpensive and quick communications between geographically disparate departments.
In this article, we’ll discuss the evolution of payments and how technology has brought us more efficient and secure processes - starting way back with the airlines industry - and an ability to drive revenue from within the AP department.
Experience cost reduction and increased protection by using virtual cards
The cost of processing check payments has long been borne by the business owner. These costs come in the form of payments - anywhere from $3-$20 - for banks to deposit money into a supplier’s bank account. The check writer also pays fees for processing. Added to this is the cost both buyer and supplier pay for all the back office paperwork. The more manual the process, the more potential for errors to occur along the payments journey - which in turn affects cash flow, time, and customer-supplier relationships. There is also a cost to the supplier when they are paid by check - - they have to take the check in, open the envelope, go to the bank, deposit the check - - all of this administrative activity adds up to between $3-20 per transaction. These manual processes are inefficient, there’s a cost to it, and there are time delays when a business has to go through this process: the supplier’s cash flow is slowed down as a result of paper check payments.
In the latter part of the 20th century, ACH payments began to take hold, offering an efficient and economical way to process payments. While reasonably secure, ACH payments still have weak points along the process, exposing account numbers that fraudsters could copy. This kind of theft is often simply done by the perpetrator breaking into an email system.
Virtual cards first came into the marketplace in the late 1990s and provided a foolproof digital payments solution for businesses. Since virtual cards have a limited usage period (anywhere from hours to a few months, depending on requirements), the likelihood of cloning or other means of theft is nearly nonexistent. In addition, a new number is generated for each transaction, and the actual account details are hidden throughout the process.
Creating efficient AP departments, small and large
Much of the resources in accounts payable is tied up in the manual reconciliation of purchase orders, invoices, and payments. In smaller businesses, the person tasked with this job often wears many hats within the organization. Efficiencies gained in a company’s AP department provide employees with more time to manage other tasks. The manual process of paying suppliers in a timely fashion is vital to all businesses, and maintaining a mutually valued relationship hinges on paying easily to maintain a dynamic cash flow for both parties. For customers, both large and small, WEX works with a business’s suppliers to ensure they are signed up and connected to the company’s virtual payment process. WEX houses an extensive database and through existing relationships with current clients is able to identify suppliers that currently accept virtual cards. This allows WEX customers to easily assess which of their suppliers are likely to transition to digital payments. And WEX works with a company’s suppliers as if they were its own business partners, sensitively and empathically. This is part of creating a virtual AP process and ensuring a company’s suppliers are tied in and included in the business benefits of the digital payments system.
By deploying a virtual AP system, resources are freed up for more strategic tasks, improving efficiencies all around.
Scaling up your business by automating processes
Manual processes drastically slow the ability to create scale in your business. For example, whether you grow through acquisition or through new product development, your ability to scale your operations quickly and efficiently will be directly tied to how onerous those manual processes are. To be stuck in manual processes will hamper your growth when you bring on new customers and suppliers. In addition, when you add cross-border business transactions into the mix, you further complicate the AP process. When your business involves handling local currencies and catering to different payment processes, having a digital payments technology will be the difference between smooth scaling and a more difficult process.
Foiling fraud with advanced technology
During the last two years, half of all corporations said that fraudsters most commonly attacked through their AP departments. Email compromise — targeting invoices and other methods of payment — was where the abundance of negatively impacting fraud schemes occurred.
The implications of fraud are enormous on your business in terms of loss of revenue and in the potential for an erosion of trust with customers and suppliers. No one wants to notify their business partners of a data breach — everyone in the value chain is compromised, and it can lead to additional costs — e.g. changing account numbers and all the associated work required to integrate the new account numbers into a transaction system. In addition, fraud’s impacts can sour business relationships as quickly as poor customer service or an inefficient payment history can.
With a virtual card system in place, the opportunities for fraud are greatly reduced, providing your business a risk-averse solution. A virtual number is generated for each transaction; it can not be used again and therefore is useless beyond the transaction it was generated for. In addition, the best digital payments systems integrate with a business’s suppliers so that you can instantly pay them and only them. This process can work for large suppliers, as well as small local materials suppliers.
The whole process of using virtual payments reduces fraud, provides you with more visibility into your payments, and saves your company money.
Generating revenue within your AP department
Traditionally a cost center, your AP department can also be a revenue-generator by incorporating the efficiency and security found in a virtual card system. Processing checks is costly for your suppliers; the fee can be anywhere from $3 - $30, depending on the size of the business and their bank. ACH costs are lower but still generate fees of between $.50 and $10. This is a cost borne by the supplier and sometimes by both the supplier and the customer. With a virtual payment system, not only are the fees eliminated but revenue is generated by the savings afforded in paying virtually — through adding to your company’s bottom line.
If you are a small business, receiving or writing 1,500 checks a year - you might be paying your bank around $10,000 a year in bank charges. With a virtual card system, those fees are transformed into rebates and could earn your business nearly that same amount as revenue. Client's can use the rebates earned to invest in the business’s top priorities. The supplier receives an electronic payment - a payment that is secure and efficient - and everybody wins.
The idea of an AP department generating revenue would have seemed outlandish not that long ago, but because of the efficiencies and the security that automated AP systems provide, everyone along the payment journey benefits. Rebates have become a business-efficient solution for bankers as well.
Payment technology and beyond
According to a recent PYMNTS article, by 2025 it is expected that nearly 80% of buyer-to-supplier transactions will be completed electronically. Whether your business is delivering restaurant food to homes and offices or supplying copper wire to building sites, efficiency and security — as well as saving money — become increasingly tied to your business's success.
“Eliminating paper, securing transactions, and generating revenue are all areas where we help businesses become more efficient and more adept players in the marketplace,” says Sue Holbrook, VP, Corporate Payments, US at WEX. “We have worked with businesses large and small to integrate automated AP into their value chains to improve their business prospects in the future.”
As some sectors embrace the increased movement to remote work, the ability to transact business without face-to-face interaction can be crucial to recruiting and maintaining the best staff. Virtual transactions are also tied directly to risk management — be it a pandemic, extreme weather, or industry action — being able to continue as usual, whatever the crisis, makes for a nimble business. So just because you can’t get to the office this week doesn’t mean your business has to stop.
As contactless payments and virtual wallets become the norm in consumer payments, the benefits of virtual accounts will become ever more ubiquitous. Given the increase in both trust and capabilities of virtual payment systems among consumers — particularly Millennials and GenZ — it makes business sense to consider how an automated AP system can work for your organization. A flexible, automated AP system is a giant step toward becoming a more nimble and responsive organization — with an eye on keeping business on track today but always ready to change direction, whatever the future brings.
Learn more about how WEX payment solutions can be tailored to your business, so you can accelerate and streamline operations while creating lasting growth and success for your organization.
PYMNTS Magazine: B2B Digital Payments January 2022