The Digital Transformation Tipping Point for AP & AR

Transactis CEO Joe Proto recently sat down with distributing partner People’s United Bank to discuss for their new eBook: The Digital Transformation Tipping Point for AP & AR.
Download the full eBook from People’s United Bank.

What impact has the 2020 pandemic had on accounts receivable? 

When people ask me how I have spent nearly 40 years in the payments industry, I tell them that it’s remained exciting because the landscape is ever evolving. COVID has had, and continues to have, a major impact on receivables. We were already in a multi-decade secular shift of continuous improvement and automation, but the pandemic pushed the proverbial envelope for both business and consumer payments. 

While the headlines are often about point of sale and ecommerce, bill payment moves more of the gross domestic product than any other payment scenario. There are 4 million companies in the U.S. that send out 15 billion bills, statements and invoices annually, and that doesn’t even count the 4 million small businesses that also need to bill in order to be paid.  

What’s become particularly challenging for many organizations over the last year is delivering the paper bills they generate and processing the paper checks they receive. Two-thirds of the bills businesses send in the U.S. are paper-based, that’s nearly 10 billion bills. When the pandemic forced many companies to suddenly close their offices, their ability to send bills and get paid, as well as make payments, using manual, paper-based processes was dramatically disrupted. Companies nationwide were hard hit by escalating infection rates, which created a log jam effect: I can’t pay you if you’re sending me paper bills in the mail because there’s no one in the office to process them. And you can’t pay me because I can’t get the bills out. So, what started as a logistical nightmare fueled a cashflow nightmare. 

What is shaping the future of accounts receivable? 

For the C-Suite, there’s a tremendous amount of pressure not only to survive but to grow their business and emerge from the pandemic stronger than before. That means they need to focus their precious resources—both cash and people—on what is core to their success. Moving forward we’ll see wherever possible automation should replace manual processes for receivables. IVR systems should be telling customers what amounts are due and taking payments while staff focus their efforts on more value-add customer servicing. 

As we continue to move toward digital interoperable API-based processes for receivables, I expect to see a network effect that solves for more automated payables and receivables at the same time. 

The future of receivables is also the future of payables: They’re really twins separated at birth that have been kept apart due to antiquated paper-based processes. As we continue to move toward digital interoperable API-based processes for receivables, I expect to see a network effect that solves for more automated payables and receivables at the same time.   

What will new digital payables and receivables processes look like? 

These digital processes will be more accurate, easier and faster to post and reconcile at far lower costs. They will look like what we currently see on the consumer side where the credit card world has made matching merchants, cardholders, and payments a seamless process. For business payments, that same exchange doesn’t yet exist. However, we’re steadily moving toward that type of trusted, neutral, secure exchange for B2B payments.  

In this space, the future is the multi-rail. Right now we ask, “Should I pay this with a check, an ACH, credit, debit, or digital wallet?” But if you send a package, you don’t care if it gets there by truck, by plane, or by boat. You just care if it gets there. It will soon be the same way with B2B payments. Banks are in the ideal position to provide this network, leveraging and collaborating on innovation with technology companies, to focus on the movement of money and data in a way that happens as a singular integrated process. 

Who will solve these challenges: banks, FinTechs, or both? 

Banks will lead this transformation because financial institutions are the only common element that all businesses and consumers share. However, the most successful banks will combine their reach and strength in compliance and fraud management with the innovations of FinTechs to ultimately create the most value for corporate and retail customers.