The Steady March to Digitization

How Corporates are Achieving Payables Optimization

Treasury organizations are under increasing pressure to squeeze every last drop of efficiency out of their payables function in order to free up vital working capital. The need to optimize payables has created a steady march to digitization which promises to eliminate costly paper processes and deliver back-office proficiency.

¹The reality is paper continues to be a burden on treasury organizations. While there is a migration away from expensive, paper-based payments toward electronic payments, 71 percent of all received invoices today are still on paper and more than 60 percent of the receipt and approval process remains manual. Companies that have yet to automate their Accounts Payable (A/P) processes are paying the price with costs ranging from $14 to just under $17 to process a single invoice. This reliance on paper is also costing time, as the cycle time to process a single invoice from receipt through payment scheduling ranges from 15.5 to 19.7 days.

In contrast, electronic payments allow companies to automate parts of their A/P processes, cutting costs by nearly $12 per invoice and reducing cycle times by as much as 16 days.

Improving Process Efficiency through Payment Networks

The emergence of business-to-business electronic payment networks is facilitating the migration from paper to digital transactions, which holds the promise of improved process efficiency.

These closed-loop ACH payment networks enable the online exchange of electronic payments and remittance advice between buyers and suppliers. Suppliers have grown increasingly attracted to payment networks because they offer a number of important advantages, such as seamless integration with ERP systems, fraud mitigation, reduced Days Sales Outstanding (DSO), remittance data delivered at payment execution for simplified reconciliation, and access to enhanced query, reporting, payment tracking and document management capabilities. The automation of accounts receivable (A/R) information through ERP systems eliminates manual posting, delivering significant time and cost savings. Payment networks also allow buyers and suppliers to exchange sensitive non-financial data, such as tax information in a secure environment.

Buyers share similar benefits. Because account and routing information is handled exclusively by a third-party, the risk of data breaches is virtually eliminated. Instead of manual check runs, buyers can create a file from their ERP system to automatically initiative supplier payments, creating greater A/P efficiency. Much like suppliers, the online portal is a convenient tool for payment approval, query, and reporting, as well as conducting supplier onboarding management activities.

And because suppliers enrolling in these networks agree to a network fee (which is typically a percentage of the transaction value), buyers gain a new source of income in the form of a revenue share from this fee.

Card Payables: Delivering Enhanced Data

Another attractive tool that organizations are embracing to achieve improved treasury efficiencies is card payables solutions. Payables online, or virtual cards, as they’re also known, are highly advantageous to both buyers and suppliers. Fifth Third Bank’s card payables solution relies on the highly trusted MasterCard network for transaction clearing.

What distinguishes the Fifth Third card solution for buyers is the enhanced data being captured, thus enabling better analysis and reconciliation that helps in negotiating favorable pricing with suppliers from a travel and expense, as well as a purchasing perspective. This robust tool also serves as an expense reporting solution, which can be particularly useful for organizations that haven’t made an investment in a million dollar expense management system.

A card payables solution delivers additional advantages, such as eliminating costly and cumbersome check processing and the inefficiencies of traditional procure-to-pay practices. At the same time, suppliers are paid more quickly, which helps to strength important business relationships and the reliability of the supply chain. In addition, virtual cards reduce the potential for fraud, while preserving or extending payment float, which improves access to vital working capital.

For suppliers, a card payables solution provides an electronic method to receive invoice remittance information with the payment via secure email, which is automatically uploaded into the receivable system. Depending upon the agreement with the buyer, a card solution can potentially shorten DSO, whether it be through elimination of mail float or shorter payment terms. Overall, a card solution can streamline invoice reconciliation, and reduce payment processing and collection costs.

The Importance of Working with a Trusted Bank to Achieve Success

Treasury organizations would be well served to examine their payables processes and truly explore the many tools available today that will optimize the payables function and support suppliers. In order to gain the greatest efficiencies from the solutions available today, treasury should work with a trusted bank to ensure success. Fifth Third offers leading-edge payables solutions that can help organizations meet their critical business objectives. We can help you eliminate paper-based and manual A/P processes, driving efficiency and improving access to vital working capital.

¹RPMG, MasterCard NAPCP statistics provided.

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