The B2B landscape has undergone several bouts of transformation throughout its history, and over the past few years it has been, in my opinion, in the midst of arguably its most historic transformation yet – the movement towards a digital and highly automated landscape.
While this movement appears to have been in process for some time, the pandemic and the sudden movement to remote work propelled many trends forward and taught us a lot about the way the world operates – including the many ways technology can help us stay connected and simplify day-to-day processes.
When it comes to business payments, the transformation of the industry over the past few years has highlighted the need for organizations to move away from manual AP processes towards more automated solutions, where all resources are available online.
This movement has helped many organizations not only survive the pandemic, but continue to thrive, and – in the best case scenarios – to grow. That growth has allowed more and more organizations to begin operating – or to consider operating – across borders, which has further prompted AP automation organizations to provide a more holistic solution, or a “one stop shop” of sorts.
Challenges impacting AP processes
To fully grasp the benefits of a holistic solutions, it’s important to first understand the current processes and the most common challenges impacting AP processes. These include:
Manual processes and collecting knowledge
Many professionals who have been in the industry for years relied on manual AP processes, including everything from paper invoices to manual data entry.
Additionally, many AP companies either have the payments module or stop short and prepare a “ready to pay” file for their downstream clients. The result of the latter scenario is that the client may have to manually log into their providers portal to affect the payments, which can be a disjointed and often time consuming process.
The movement towards technology and away from these processes seemed – and may still seem – overwhelming for these individuals or organizations.
However, the benefits greatly outweigh the costs when it comes to this transition. Moving towards automated systems helps to limit errors in data entry, but also may allow for better visibility and an increase in control over invoices, which helps to avoid late payments.
Organizations that have a decentralized AP process, where each subsidiary or geographic market is processing their own payments, often lack visibility which can result in poor cash flow management.
An example of this is when a US-based firm with European subsidiaries is not able to process payments within one platform, originating from the parent company.
Moving towards a more holistic solution removes the need for multiple providers for subsidiaries, and can allow organizations to streamline operations. This can be done in part by finding a provider that has the ability to accommodate subsidiaries and can debit the respective currency accounts to provide full visibility for the parent organization.
However, if an organization is to integrate a cross-border solution, the technology is only one aspect of the solution. They should also ensure that there’s a tailored exception handling process to provide a good experience for both the AP automation company and their clients.
Lack of full-service options
One of the most important aspects of a holistic solution can be service.
Full-service solutions allow AP automation organizations to engage with their provider on a regular basis – and for the provider to act an extension of the organization’s support team, especially when we look at it from a post- transactional perspective. For example, when a vendor is claiming non-receipt of funds, you want to be able to connect with a provider that will conduct the payment investigation in a timely manner and remedy the issue, if any.
Holistic full-service providers also offer the flexibility to amend and re-affect payments, so the vendor always receives their payment in a timely manner.
I suspect that most AP organizations have focused on domestic spend and have partnered with several other organizations that provide virtual card and/or check payments. While they may assume it’s best to focus their efforts on their own operations and partner with various organizations that may be experts in each area, this approach can actually limit their potential.
This approach may not monetize their potential cross border flow, they are also having the client process cross border payments outside of their platform, which effectively results in inefficiencies.
Last, but certainly not least, a very common challenge that all companies that operate across borders encounter is FX volatility. All cross border invoices are subject to FX volatility, which can be further amplified by longer payment terms. For example, if an invoice is received on May 1st and needs to be paid on July 1st, in the case that their terms are net 60 days, it can become difficult for AP organizations to predict gains or losses or to help their clients mitigate FX risk.
To mitigate this, businesses can look for a provider that allows for products that micro auto hedge invoices. This can grant the organization peace of mind, because once the invoice is approved for payment in their platform, it would automatically hedge that invoice. This allows the client to know the exact amount they are paying, effectively this can reduce FX gains or losses on their balance sheet.
Benefits of a holistic solution
In addition to helping solve the above challenges, a holistic solution can also provide organizations with several benefits.
Most notably, it can lead to time savings as the client no longer needs to log into different platforms to facilitate payments. A holistic solution can also lead to faster delivery of payments, when partnering with a cross border payments provider that has the banking footprint to deliver funds in country by leveraging local payment rails.
Additionally, it allows for greater transparency. An ideal holistic payments approach offers visibility into all supplier payments, which will enable AP professionals to design a more detailed cash management strategy.
Lastly, a holistic solution can help companies reduce costs by improving margins and by saving on cross-border fees, if they operate in several countries.
A movement towards streamlined processes
It’s clear that fundamental changes have been taking place in the B2B payments landscape, which are helping the ecosystem eliminate inefficient processes. Automating AP processes not only provides companies with a more holistic solution, but also enhances visibility of the entire AP process and helps manage cash flow.
Cambridge can help companies streamline processes and expand their presence by connecting businesses, buyers and sellers all over the world. Our network provides access to 150+ currencies, which can not only lower cost per transaction but also allow for earlier payments in some circumstances.
To learn more about our services, please visit: https://www.cambridgefx.com/home/
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