• Colin Doyle CFO

Payments: The missed opportunity for accounting firms

Despite advances in technology, too many companies are still wasting time and money with manual bill pay and paper checks. Accounting firms are in a unique position to help these companies, but many firms fail to recognize that handling payments represents a prime opportunity to generate new revenue, offer a differentiated service and help clients save time.

Technology has made it much more feasible for clients to outsource payments and for accountants to take it on. Assisting with payments is an ideal way for your firm to both boost revenue and solve real business problems for your clients.

B2B payments are inefficient. According to September 2018 equity research by Goldman Sachs, American businesses spend more than $500 billion each year in B2B payment costs, including personnel costs, payment processing fees, cross-border payment charges, late fees and inventory financing costs. A huge contributor to this high AP cost is the inefficiency stemming from the fact that, according to the report, businesses are still paying a majority of checks — up to 80 percent — on paper.

Lengthy review processes significantly drive up manual accounts payable costs. Think about what’s involved in paying a single bill at the average company. A vendor submits a bill, which must be routed to and manually approved by whoever oversees that vendor. Once it’s approved, the bill has to be put through the approval process for actual payment, with typically involves yet another person. After the approval goes through, the person in charge of payments has to print a check, get it signed, find the right envelopes and postage, mail the check, then send the information along to the next person then responsible for reconciling the company’s books. At some organizations, including nonprofits, two signatures are required for every check, slowing things down even more. At every step of the process there’s potential for human errors, delays, missed payments, or late fees.

Goldman Sachs estimates that every invoice paid with a manual process costs a small business up to $22 in headcount and processing costs. Multiply that by the number of invoices paid in a year and the costs quickly skyrocket. Processing 100 manual payments a month can cost over $26,000 a year. A company that processes 500 manual payments each month is looking at possible yearly payment costs of $132,000, just for bills.

Paying by check is not only costly and inefficient, but vendors don’t like it. When vendors get paid by check, they have to open the check, manually record the payment, get the check signed, deposit it into the bank (which often requires a physical trip), record the cash deposit, then wait for the funds to clear before they’re actually officially paid. According to a recent study by MasterCard and PYMNTS, while paper checks are the most commonly used payment method, vendors ranked them fourth in terms of preference, behind ACH, bank transfers and credit cards.

How technology has changed the payments landscape

Advances in technology, including digital business payments and accounts payable automation, have convinced many companies to stop relying on manual processes and paper checks. AP automation offers several benefits over the traditional manual payments process that boost efficiency and reduce cost.

AP automation and digital business payments eliminate the back-and-forth of manual invoice processing and reduce the whole operation to a few simple clicks, saving significant time. By automating the process, labor costs are also substantially reduced, slashing the amount of personnel time spent on AP processing by half. In addition to reducing time and labor costs, AP automation also eliminates the costs of check stock, printer ink, envelopes and postage. The result is faster, more efficient and more accurate bill payment for a fraction of the cost.

Artificial intelligence is similarly changing the game when it comes to bill pay. AI and machine learning take rules-based processes like payment approval and apply that knowledge to create automatic workflows that improve and accelerate nearly every aspect of the AP process. AI is capable of finding connections among data points that humans can’t quickly or easily identify, including spotting typos, anticipating upcoming invoices, identifying vendors with lower costs and timing payments to maximize discounts and cash flow. Moreover, the revenue-boosting benefits go beyond direct costs, as employees who were once bogged down by manual payment processing tasks can now focus on higher-value work that helps the business grow.

As technology continues to evolve, new payment types are emerging to replace traditional paper checks. The digital payments landscape emerged with the introduction of payment methods like credit cards, e-checks, ACH transfers, international wire transfers and virtual cards, and continues to evolve today. Going forward, more and more businesses are considering expanding their payment options to include cryptocurrencies and additional digital payment methods will likely emerge.

How much longer do you think checks will be a viable payment option? Do you think businesses will still be paying each other by check in five years? In 10? Eventually, checks and manual processes will be completely replaced by digital workflows and payments — it will happen slowly at first, but the final shift will likely be sudden. When that occurs, will you and your clients be ready? By embracing digital payments and automation now, you’ll be ahead of the curve when checks are no longer an option.

Cost comparison: Checks vs. digital payments

Paying by paper check costs much more than most companies realize. It’s estimated that small businesses that rely on manual payment processes and paper checks spend $22.26 in direct costs for every invoice processed.

In contrast, small businesses that have switched over to online payments and AP automation are immediately seeing the associated cost savings. Companies with automated processes and digital payments spend just $6.89 in direct costs per invoice. That means that simply by going digital companies are saving 76 percent on their direct AP costs.

The benefits of AP automation and digital payments

While the cost savings are significant, they aren’t the only benefit of making the switch to digital payments. Automation allows businesses to process more bills in less time, thanks to streamlined workflows that require less manual labor and free up staff for higher-value work.

AP automation and digital payments also offer huge benefits not just to your clients, but to their vendors as well. They can get paid faster and in whatever form they most prefer to be paid and in their local currency to boot. Faster and better payments keep vendors happy and improve your clients’ ability to form long-lasting relationships. The streamlined experience of AP automation is a win-win for everyone involved in the payments process.

Companies that are still relying on paper checks to pay bills are wasting time and money. By handling AP for your clients and getting them to switch to digital payments with AP automation, your clients can reduce the amount of time and money spent on every transaction, allowing them to control and decrease costs.

It’s time to help your clients ditch the paper checks and take advantage of technology. By using automation to handle your clients’ payments, you’ll be solving real problems for them while you boost your own profits.

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