by Chen Amit, co-founder and CEO of Tipalti
The accounts payable process is often the biggest thorn in a small business’s side. And accounts payable processing is poised to become even more significant and complex over the next three years, according to the Institute of Finance & Managemen’s research.
To start, the use of electronic invoices is set to explode, completely eliminating paper invoicing. In fact, suppliers already prefer electronic invoicing formats that drastically reduce operational costs. On average, invoices cost AP departments about $30 each to send, while e-invoicing costs only an average of $3.50.
New technologies will also change the face of AP. As artificial intelligence, machine learning, and robotics process automation become embedded in future technology, modern companies will shift their focus to creating platforms and solutions that rely on these advanced capabilities. At the same time, businesses will be moving away from manual operations and toward solutions that are both cloud-based and mobile.
Based on the ever-evolving finance industry, your small business will encounter a few key trends in the next few years: an increase in complex cross-border payments, demands for faster payment reconciliation, and the need for more secure processes.
Increasing complex cross-border payments.
As your business grows, you’ll probably need to pay more vendors, suppliers, freelance contractors, and service providers who live and operate in other countries. Not only that, but McKinsey predicts a 5% increase in global payments revenue every year for the next few years. This means that complex cross-border payments will prove ever more important to your operations.
Cross-border payments are more complicated and riskier than in-country exchanges. To begin with, fluctuating foreign currency exchange rates affect your payment obligations. Sending money via expensive paper checks or wire transfer may be the norm, but they both have fraud rates and postal issues that make them a poor choice. These methods also eat into your profits: They’re expensive and subject to exorbitant currency conversion bank fees.
Speeding up time to financial close.
Payment reconciliation is already one of the biggest time expenditures in accounting. Businesses have to wait for and sort through delayed and cryptic data from their banks. Checks may not clear in time — or ever, and transfer and conversion fees have to be pulled from different reports. Multiplying payment methods, especially from cross-border entities, will continue to add even more layers of complexity to reporting processes.
If your business is growing, you’re consistently adding payees to your system. By the time you’re dealing with hundreds — let alone thousands — of payees, it will become increasingly difficult to manage multiple payment accounts. Trying to navigate this complex and time-consuming process can be disastrous for your business.
Reducing risk.
Funds leaving your business almost never return. That’s why it’s imperative to make sure that outgoing payment processes are secure. Companies often do this by limiting access to entire payment systems, like bank portals, to only a select few. Problems arise because this is a difficult process to audit, and it requires high-level executives such as CFOs or controllers to spend time logging into bank accounts and entering payment data. As your business grows, the increasing number of payments makes it even more tedious and time-consuming, which means that it oftentimes is neglected — opening up your business to delayed or missed payments, fraud, and other risks.
To reduce risk most effectively, your business will need to formalize a procurement resource plan and standardize organizational processes. And these processes should be automated. A Harvard Business Review study shows cloud solutions already boost speeds and lower costs for up to 85% of the organizations that have adopted them. Your payees want to be using cloud-based mobile solutions — and you’ll need to keep up.
Meet the Challenges Head On.
Most of these trends will be facilitated by AI and machine learning embedded in advanced financial technologies. To prepare for these challenges, modern companies should shift their focus now to implementing AP platforms, solutions, and capabilities based on those advanced technologies.
These steps will help you reduce risk, speed up account reconciliation, and simplify cross-border payment processing:
1. Consolidate payment transactions.
Most traditional AP infrastructures, especially for small businesses, aren’t built to handle thousands of payees from across the globe. However, consolidating payment transactions into a single system helps normalize and sync payment data to make global reporting easier. It helps you avoid the significant losses that can result from delayed reconciliation and falling behind on payments.
2. Go paperless.
Give vendors the means to upload or email PDF invoices and establish a flexible remittance strategy. An integrated vendor portal with the ability to add more electronic payment types makes the AP process paperless. Plus, giving vendors a choice in payment methods strengthens your relationships with them while ensuring more traceable payments for faster reconciliation.
3. Add financial controls.
Use role-based permissions to secure your outgoing payment processes. These segregate duties depending on who can initiate disbursements, fund accounts, create approval flows, run reports, and more. With role-based access control, high-level executives can maintain tight payment processing security without having to do everything manually. Instead, they can add financial controls to payment execution that track and limit who has access to each process.
AP processing is bound to grow increasingly complex over the next several years, and the sooner small and midsize businesses start preparing, the better. These steps can help minimize some of the biggest challenges, starting with investing in smarter, more integrated AP technologies.
Chen Amit is the co-founder and CEO of Tipalti, a payment automation software that helps businesses manage their entire supplier payments operations by streamlining all phases of the AP and payment management workflow in one holistic cloud platform. Formerly the CEO of Atrica and Verix, Chen is a veteran high tech executive and repeat entrepreneur.
