AP/AR Automation Exposes Hidden Payment Trends

By now we know the usual suspects for payments and back-office automation. There’s the paper check, and all its costs and fraud potential. There’s the paper invoice. And there’s the repetitive, manual work, not to mention the Excel spreadsheets.

But there’s life beyond the usual suspects. As Aaron Le Hew, director of invoice-to-cash at Esker, told PYMNTS in a recent interview, the time is ripe for companies to reexamine both the accounts payable and accounts receivable sides of the business, and to consider the ways in which a transformation of both, through automation, can have a positive ripple effect across supply chains, and maybe even transform the business itself.

“The pandemic,” Esker told PYMNTS, “really led organizations to rapidly change their situations because the world changed,” spurring organizations to look at how they might modernize.

And yet, as PYMNTS asked, with the conversation taking place in the wake of the latest “Accounts Receivable Tracker” series report done in collaboration between PYMNTS Intelligence and Esker: Why are so many companies still “stuck” with manual processing of invoices and payments? Is it a technology issue or a mindset issue? A combination of both?

“I don’t think it’s a technology issue,” said Le Hew, who added that there’s a “vast” amount of technology that’s out there (Esker’s included) to help modernize and solve the pain points for invoicing and payment management. What really drives a transformation is a shifting of the corporate mindset, which right now may be set in motion by discomfort.

Concerns about risk in the corporate realm are rising, Le Hew said, as small business bankruptcies are on the rise, and enterprises must focus on the financial health of the suppliers with which they do business, and suppliers want to minimize the risk of bad debt expense.

Working capital is a focus now for all companies, because in the current interest rate environment, money’s no longer free, and companies want to maximize their cash flow generation so that they can make investments on their own.

He noted that accounts receivable departments are gaining more attention, as the function is, essentially, a customer-facing one, but a lack of automation means they are effectively “treading water,” and may not be applying payments in a timely fashion.

The transformation, he said, is occurring most markedly in verticals where companies are transforming their behavior, or regulations governing invoicing are changing as well.

But no matter where the transformation traces its genesis, corporate efforts to modernize must be tangible, measured and actionable, Le Hew said.

Successful Mindset

As for the mindset: “The organizations that establish and demonstrate relentless positivity on their transformation are the ones that are … seeing very positive results,” Le Hew said, and buyers are incentivizing them to consider different ways to pay, while laggard industries tend to have relatively unsophisticated buyers.

The transformation may initially be rooted in reducing the redundant tasks in the back office, he added. But more recently, data, and specifically big data, can offer up a “call to action” that leads companies to look at payment trends, and to see how their customers might be changing their behaviors.

The firm that’s been paying, on average, within 35 days, but now takes 45 days to pay might benefit from a prompt, or messages, that seek the cause, setting the stage for a proactive discussion and more efficient payment collections.

In response to PYMNTS’ query over whether there is a natural “progression” of modernization, Le Hew stated that many firms may have looked at upgrading their accounts payable, viewing the operation as a cost center. But more recently, accounts receivable departments have drawn attention, because automating the procure-to-pay processes creates more work for the AR team.

Added Benefits

There’s a reputational benefit to AP/AR modernization, Le Hew said: Companies that are hit by fraud, from check whitewashing or other schemes, may find it hard to recover from that damage.

“This all creates an opportunity,” Le Hew said, especially to accounts receivable departments, “to say, ‘Why don’t we take a look at our internal processes and see where we can take advantage of technology to help … modernize our historical situations, and modernize how our new customers and our buyers are looking to do business with us?’”

Technology and a proactive mindset, Le Hew said, can create a competitive advantage for companies to offer their customers new ways to interact with payments and invoices — creating a sticky relationship up and down supply chains.

“Automation can reduce the delays, the ‘rework,’ the misunderstandings,” he said, “and it instills trust in buyer relationships and supplier relationships.”

Transforming the back office also transforms roles within the company itself, Le Hew said, who added that employees typically confined to AP or AR analyst or clerk roles can now find their jobs becoming strategic in nature.

“Self-awareness” within a company as it transforms, Le Hew told PYMNTS, means fostering an awareness of the challenges that face the enterprise, “and looking at what the current ‘state’ is and what the future ‘state,'” of the back office looks like.