Why Is B2B Payment Automation in Accounts Payable Essential?
Ira Brooker Written: March 2nd, 2022 Updated: July 20th, 2023
Let’s face it, handling B2B payments can be tedious. Manually tracking down invoices, gathering approvals, and processing payments一all while attempting to avoid late fees一is enough to stress out even an experienced AP leader.
But payment processing doesn’t have to be so challenging. With the right software, automating B2B payments is easy. Automation cuts down on manual labor, prevents human error, and protects against fraud. Ultimately, automating B2B payments can save companies money, while positively impacting the AP team’s morale and productivity.
In this piece, we’ll delve into B2B payment automation by exploring different forms of B2B payments, detailing some of the concrete benefits to implementing it in your AP organization, and looking into the ways automating payments can keep your operations in tune with modern best practices
TABLE OF CONTENTS
- What Is B2B Payment Automation?
- How Does B2B Payment Automation Work?
- What Processes Can Be Improved with B2B Automation?
- What Types of Payments Does B2B Payment Automation Bring Together?
- What Are the Benefits of B2B Payment Automation?
- The 4 Pillars of B2B Payment Automation
- Why Is B2B Payment Automation Necessary in 2023?
What Is B2B Payment Automation?
B2B payment automation is a technical process that enables organizations to send payments to other companies electronically in exchange for providing goods or services. Unlike manual processing, payment automation software organizes invoices as they come in, routes payments for approval, and completes payment transactions on time, all without human interference. As such, payment automation platforms reduce the chances of paying duplicate invoices, sending payments without authorization, missing payment deadlines, and more.
How Does B2B Payment Automation Work?
B2B payment automation involves replacing processes that have previously been handled manually or with minimal digital assistance with automated, touchless processes. That might include everything from entering invoice data to routing payments for approval to issuing payments in a variety of forms. The ultimate goal of automating B2B payments is to reduce delays, eliminate avoidable errors, and create smooth, mutually beneficial working relationships between businesses.
What Processes Can Be Improved with B2B
Automating B2B payments has a holistic impact on your operations, affecting a wide range of your day-to-day functions. That said, the impacts of automation will be most noticeable as they apply to some specific payment processes. Let’s take a closer look at some of the areas that are most directly improved with a B2B automation solution.
Eliminating manual data entry is one of the most visible and valuable benefits of moving to an automated system. Manual data entry takes a lot of time, lends itself to human errors that can be difficult and costly to correct, and requires tedious and repetitive work that can lead to employee burnout. Automating data entry alleviates much of the manual tasks that make up 53% of the average AP employee’s workday while also eliminating human error and increasing processing speeds.
Making sure that data matches across all necessary documents is a huge part of processing payments, and also one that becomes much more tedious and time-consuming when performed manually. An automated system with three-way matching can automatically compare invoices against purchase orders and receipts of goods and services, drastically reducing the amount of time it takes to complete a B2B transaction.
Without an automated system, the workflows for making B2B payments are often fragmented and spread across multiple departments. That increases the risk of errors and slows down the approval process. Automation allows your AP team to consolidate those processes and bring them under the same umbrella, resulting in a faster, more streamlined payment process with deeper visibility.
Only 30% of invoices processed in 2023 follow straight-through processing, with no human touch points. That means that a large percentage of businesses are leaving money and time on the table, bogging down their processing with time-wasting manual tasks and inefficiencies. By allowing payments to be made via a dedicated website portal or an e-invoicing platform, your business can build valuable trust with B2B partners.
The 2022 AFP Payments Fraud and Control Survey reports that 71% of organizations were victims of payment fraud attacks in 2021. While an automated payment processing can’t completely eliminate all forms of fraud, it can automatically flag payment processing exceptions for further review. That makes it far simpler to identify intentional overpayments, fraudulent invoices, attempts at data theft and other common forms of payment fraud.
Duplicate Payment Identification
Duplicate payments occur when a business issues a payment to a partner or vendor that has already been paid for that transaction. Duplicates account for an estimated one to two percent of total payments, a significant amount for businesses that process a high volume of B2B transactions. Not only are those errors costly to correct, they can also put strain on valuable B2B relationships. An automated payment system is able to flag transactions that have already been paid before a duplicate payment is issued, removing human error from the equation.
Reporting and Audits
Keeping careful records of your B2B transactions is essential for business reporting purposes, and for resolving any financial disputes or issues that might arise. An automated payment system generates detailed, easily searchable reports on every transaction your business conducts, providing useful material for internal and external audits. Teams using fully automated AP processes report that they can track cash flow across their entire operation much more easily than less automated organizations.
Many vendors offer discounts for early payments, while many also charge fees and penalties for late payments. The former is obviously preferable, but studies show that most businesses are able to capture 21% or less of available early payment discounts, and 12% of businesses receive no discounts at all. In many cases, that is because slow approvals, inefficient practices, and human error make it difficult to process payments quickly. The good news is that fully automated AP departments report being able to capture as much as 97% of available discounts for early payment.
One of the biggest stumbling blocks for businesses that rely largely on manual processes is a lack of real-time visibility into transaction statuses. When issues with payment processing arise, being unable to easily check where an invoice is within your system can compound the problem. An automated B2B payment system provides at-a-glance visibility into every step of your process, making it much easier to track documents and identify bottlenecks and inefficiencies.
Reduction in Errors
More human touch points in payment processing means more human errors. By automating B2B payments, a business can drastically reduce the risk of errors that slow down payments and create costly delays across the system. Studies show that the average AP team flags around 29% of invoices for exceptions, while highly automated teams bring that number down to just 12%. That adds up to some considerable time and money.
What Types of Payments Does B2B Payment Automation Bring Together?
One of the most appealing benefits of automated B2B payments is the ability to integrate a wide range of payment types into a single, comprehensive payment system. This not only increases your payment processing power, it is also much easier to manage than maintaining separate processes for each type of payment. Some common payment methods that can be consolidated with B2B automation include:
ACH (automated clearing houses)
Single use accounts
Virtual cards with rebates
1. Cost Savings
Simply put, electronic payments are cheaper than paper checks. According to a 2019 report by Levvel Research, companies that employed highly automated accounts payable processes spent, on average, only $2.36 per invoice. Companies that relied on minimal automation, on the other hand, spent $15 per invoice一over six times more than their counterparts.
One of the reasons why manual payments are so expensive is that mailing checks require printing supplies, stamps, paper, and, of course, employee labor. With the increased visibility of electronic payments, it is far less likely for payments to fall through the cracks, which ensures companies don’t incur late fees.
2. Faster Payment Processing
When B2B payments are executed manually, invoices can sit on desks or wait in email inboxes for approval for days, if not weeks. Payment automation cuts through those delays by standardizing the approval process. With automation tools, AP departments can dictate who approves which invoices by when and sends reminders or error messages when those rules aren’t followed.
The best B2B payment automation platforms come with customizable dashboards that give a high-level, real-time overview of invoice processing, offering AP leaders instant insight into any outstanding invoices.
3. Increased Productivity
B2B payment automation eliminates manual steps. Not only does this help AP team members operate more efficiently, it also gives them the time and energy to focus on more strategic activities that can scale the business. In addition, modern B2B payment automation software is built on the cloud, giving AP teams the flexibility to work together or individually in a secure environment, regardless of their location or device.
4. Fraud Prevention
Manually tracking check payments is tricky and tedious. When you’re processing checks by hand, it’s easy to miss red flags. This is particularly troublesome when you consider that checks are the payment method most frequently targeted by those committing or attempting to commit fraud.
Falling victim to fraud can be a financial nightmare for your company, but B2B payment automation mitigates the chances of fraud by:
- Flagging invalid invoices
- Enforcing payment reconciliation systems
- Controlling which users are authorized to do specific functions
- Providing visibility into total transactions
- Catching missing or incorrect data
5. Stronger Vendor Relationships
Having an all-star reputation for paying bills on time sets you apart from other companies and deepens your relationships with suppliers. Developing strong vendor relationships is crucial to your business functioning properly. B2B payment automation fortifies already solid vendor relationships in several ways, including:
- Faster service – Automating payments reduces the amount of time that suppliers and AP team members respond to inquiries around invoice and payment status.
- Real-time visibility – B2B payment platforms come with an ACH portal to provide suppliers with real-time visibility into their transaction statuses.
- Shortened payment cycles – With B2B payment automation, suppliers get paid faster, decreasing key KPIs like Days Sales Outstanding (DSO).
- Correct payments – Mistakes happen, but far less often with automated payments.
- On-time payments – B2B payment solutions send payments on or before their deadlines automatically.
- Avoiding penalties – Nothing damages a buyer-seller relationship like incurring late fees, but with B2B payment automation, you can maintain a positive working relationship.
6. Error Reduction
As you already know, manual data entry is far from a perfect process, and even the smallest errors can take valuable time away from pressing projects, damage customer and supplier relationships, and result in duplicate payments, overpayments, or underpayments. B2B payment automation highlights minor issues before they turn into major problems. With the proper software, mistakes will be few and far between.
7. Enhanced Insights
B2B payment automation software inherently captures financial data, which is critical for performing advanced analytics. Analyzing AP operations can reveal areas for process improvement and inspire ideas for reducing the payment cycle.
For example, B2B payment platforms clearly show which stages of the cycle take the longest, locate approval bottlenecks, and who to contact when there are delays. Moreover, financial data can be imported and exported with real-time access, which gives AP teams the information they need to complete quarterly reports on time. Enhanced insights and increased visibility can open the door to integrating other strategic tools that optimize cash flow, like ERPs or human capital management platforms.
8. Early-Payment Discounts
According to PayStream Advisors’ Payables Insight Report, 31% of respondents said manual routing of invoices for payment and approval stood in the way of an early-payment discount. Payment automation shortens the processing cycle, empowering organizations to take advantage of available discounts and save money. Over time, early payment discounts contribute to better cash flow, giving the company more working capital to achieve its goals.
The 4 Pillars of B2B Payment Automation
Studies show that around 53% of B2B invoices in the U.S. are paid late. That’s a frustrating situation both for organizations that are left waiting for payments and for the businesses that struggle to make payments on time. A highly automated AP department can process 16 times more invoices than a similarly sized department without automation. That increase in speed and volume can yield big benefits, especially in four key areas of invoice processing.
By configuring electronic payment transactions to match your specific B2B payment requirements, automation takes expensive custom interfaces and third-party consultants off the table. That makes it easier to reduce costs as you make your digital transformation.
A system that automates the use of wire transfers, virtual cards, and other regular financial transactions makes it simpler to match interfaces with your B2B partners. That allows you to keep a standard enterprise resource planning (ERP) system and combine payments for even bigger savings.
Document Printing & Distribution Services
Automating the printing and distribution of documents is a huge time-saver for any business dealing with high volumes of invoices, tax documents, and other negotiable documents. Remote access to printers ensures that you can produce high quality checks from any location.
Automated Document Distribution
An automated B2B payment system makes it simple to deliver invoices, remittance advices, and other documents to payees via multiple channels, including self-service portals and email. That cuts back on time and effort that might otherwise be spent responding to inquiries.
AP AUTOMATION DEMO
Why Is B2B Payment Automation Necessary in 2023?
Investing in automated solutions for managing B2B payments is more crucial than ever in an era of digital transactions. As more and more industries embrace automated payments, organizations that continue to rely on outdated methods and manual processes virtually guarantee that they will be left behind. A business that fails to adopt payment automation runs the risk of:
Increased Operating Costs
Some businesses are resistant to upgrading to automated payment processing because they worry about the initial cost of investment. In fact, surveys show that more than 75% of executives whose businesses have moved to AP automation say that they’ve seen reduced costs overall. Simply put, processing payments manually takes more time, creates more errors, and costs more money than a reliable, automated system.
As we noted earlier in this article, the list of payment processes that are impacted by transitioning to automation is long and comprehensive. Not only is managing tasks such as data entry and document matching using manual processes slower and more error-prone, those processes tend to be repetitive and tedious for employees. That can lead to higher rates of burnout, a major concern for any business in an era of widespread worker shortages. Automation frees up those workers to focus on more engaging tasks that make better use of their skills and training.
Financial transactions between businesses come with a large number of compliance considerations, both due to governmental regulations and industry-specific standards. Making sure that each B2B payment meets every compliance requirement is simply too large a task to be handled manually, especially for a business dealing with high volumes of transactions. AP automation has been shown to reduce the time employees spend correcting errors by more than half, greatly reducing the risk of fines and reputational damage that comes with noncompliance.
A B2B payment relationship depends on both sides maintaining a strong and trusting partnership. If one partner consistently provides the other with late, incomplete, or error-filled documentation, those all-important relationships quickly grow strained and may collapse all together. Automation increases your reliability and lets your partners know that your business can be depended upon to do things the right way every time.
Stay Ahead of the Economic Times! Discover the Biggest B2B Payment Trends of 2023
Streamline Your B2B Payments with MHC NorthStar
B2B payment automation has countless benefits一from capitalizing on cost-savings, to curtailing fraud, to cashing in on early-payment discounts. And that doesn’t include the satisfaction AP teams feel after switching to a B2B payment automation platform.
AP team members will no longer waste time sifting through invoices or waiting for days to get proper approvals. They’ll also be less worried about making mistakes and have a faster, more accurate quarter-end close. But to reap all the benefits of a B2B payment automation partner, you have to pick the right one.
MHC NorthStar, a cloud-based intelligent AP automation solution, offers the flexibility of configurable workflows and ease of self-service access. It frees you up from the tedious, everyday tasks and allows you and your team to focus on more value-added work that moves the needle for your business.
Leverage MHC’s proven technology to eliminate the need for manual intervention, streamlining your entire process, while improving efficiencies throughout your team and, ultimately, your entire organization.
Schedule a personalized demo today and see how AP automation software can enhance your work.