by Lauren Ruef, Research Analyst for Nvoicepay
Henry Kissinger once said, “The task of the leader is to get his people from where they are to where they have not been.”
This can’t be done without the discomfort of change. What works now probably isn’t going to work in the future, and the sooner it’s accepted, the faster team’s can innovate. For companies looking to innovate — that future is now.
Being pragmatic about what works now isn’t a game plan for five years from now. While companies are busy maintaining the status quo, precious moments are slipping away to get ahead of the competition with better technology.
“If it ain’t broke, don’t fix it” is not a strategy that helps companies lean into the future, because it’s focused on the past. Thinking a few steps ahead lends a company the advantage of scaling, which translates into moving faster toward goals with less effort.
Automation is the place to start for scaling. Leaders often look first for highly-visible revenue generating places first automate, but a less obvious, yet equally powerful place to start is at the nerve center of business operations: the back office.
The status quo looks a lot like paper checks.
Consider a small business that’s paying vendors by check. The manual process in place is fine if staff isn’t feeling the discomfort of writing 20 or 30 checks a month. But when new customers flood in and hiring picks up, more vendors will need to be paid. That’s when the amount of checks written begin to double, then triple.
So while your payment strategy may not be broken (yet), as with most things in business, the need to automate and scale may change overnight.
When payment due dates begin to slip by and that stack of unpaid invoices grows taller and taller, you may end up with a back office nightmare on your hands. Adding headcount to deal with this growth undermines the golden rule to scaling — do more with less.
This means pivoting to ePayments. Electronic payments resolve the issue of adding staff while simultaneously allowing vendors to get paid faster.
Pragmatic solutions are only designed to take you so far. They won’t scale dynamically to your company’s growth; they just exist to plug the holes. Paper checks, like most pragmatic solutions, are the status quo. They work for now, but aren’t an optimal way to pay vendors.
Cash flow no longer a concern.
Alongside scaling, cash flow is a top concern for most business owners. Balancing money coming in against money going out is a basic tenant of accounting. Check float is a common practice used by businesses to gain liquidity from bill payments before they are processed. In the time the check is “in the mail,” companies seek to plug the holes of short term cash needs through this practice. It’s hard for most businesses to estimate the number of float days they have left with this reactionary approach.
Instead of relying on a cash management strategy of the past, cutting costs in Accounts Payable is a more future-focused first step. Businesses not only cut down on AP spend with savings secured through the elimination of checks, they may actually generate significant earnings through card-based rebates.
Despite the reality that payment automation is a clear way for businesses to scale, the“if it ain’t broke, don’t fix it” mentality still holds a lot of sway with businesses and there are a few reasons why.
Smaller vendors may express hesitation about giving out their ACH bank information.
Tradition is a huge barrier to change, but what’s familiar isn’t necessarily better. Stubbornness is part of the problem with vendors. Businesses worry about getting members of their supply chain to adopt new payment methods and don’t want to deal with any of the fall out from rocking the boat. Unfortunately, this is a loss for both the business and the vendor, as ePayments provide a way for vendors to get paid faster, and businesses a way to negotiate early-pay discounts by paying vendors ahead of the due date.
So how do you get a vendor to go with the more expedient option? Share the likely scenario of what will happen if they don’t. According to a 2016 survey by the Association for Financial Professionals, “71 percent of companies are experiencing actual or attempted check fraud.”
Electronic payment providers offer services like payment support and 100 percent payment indemnity, which guarantees correct payment delivery. No more guesswork for vendors about when payment arrives, or whether the check has been misplaced.
Competitor-driven extension of payment terms.
The aches and pains of checks aren’t much different in the world of big business, but the competition is greater, and there are more demands on where check float funds are going. AP trends in this space are largely dictated by what the other heavyweights in the industry are doing. This means if a company like Pepsi extends their vendor payment terms up to 120 days as a cash management tactic, Coca Cola is likely to try it with their vendors too.
Vendors awaiting payment, sometimes for up to four months, are likely to cut ties with a company that conducts business that way. They increasingly expect shorter payment terms with the availability of modern technology. And when a business is holding out on them to play to their own advantage, goodwill and trust is dissolved in the relationship.
Businesses in poor financial standing cling to check float.
Leaning on check float as a cash management strategy gives the impression of cash flow problems. Slow payments can be one indicator of liquidity issues—when a business is short the money it owes other people and is using it to invest in crucial operations. Vendors can hardly express confidence in a business reliant on these kind of passive tactics to steer the ship. They want to get paid, and it’s enough to prevent them from forging partnerships.
To grow and continually stay lean, a business must look to the future to anticipate its needs rather than examine what is currently working. “If it ain’t broke, don’t fix it” is not a long term strategy for a company seeking to remain competitive in a landscape that is increasingly automated and paperless. Relying on paper checks may work for now, but leading others into a successful future requires exploring better options.
Lauren Ruef is a Research Analyst for Nvoicepay with six years of experience conducting market research and crafting digital content for technology companies.
