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A/R University

The Five Myths that Keep Vendors from Adopting Electronic Invoicing and Payments

(and the truth that puts them to rest)

If you have ever considered getting started with electronic invoicing and payments, you’ve likely heard some of the myths that have kept many companies from innovating their accounts receivable practices and benefiting from the advantages of digital technology.

In order to lay these misconceptions to rest, we are addressing five of the most common myths about accounts receivable automation. By debunking fears and discerning fact from fiction, we hope to eliminate some of the barriers that hold companies back from all the advantages of automation.

Myth #1:

Our paper-based, manual process works fine.

“We have always done it this way. Our manual process works”

This is one of the first push-backs given when exploring the idea of adopting automated accounts receivable with practitioners. The myth lies in the fact that these A/R professionals are either

1) intimidated by the thought of moving to electronic invoice-to-cash (I2C)
because they believe all of the myths listed here, or

2) they are unaware of the time and resources they are wasting with their
current practices, in addition to their team’s loss of productivity.

The laundry list of advantages electronic invoicing and payments have over paper- based A/R makes it easy to bust each of the myths. At the very least, adopting an electronic I2C solution improves collections, accelerates cash flow, lowers DSO, decreases costs, and enhances customer satisfaction, among other things.

Yet, the one advantage that has become abundantly clear due to the coronavirus pandemic is that electronic invoicing and payments, especially if they are automated, allow A/R teams to maintain a high efficiency even if they have to suddenly work from home.

Historically, most national and global crises have been economic-based and have only highlighted the cost benefits of digital automation. However, by creating the largest work-from-home population in history in just a few weeks, the coronavirus has accentuated a greater problem: the immobility and ineffectiveness of A/R practices that rely on fixed, office infrastructure and manual processes cannot be done remotely.

So, while many think their manual A/R approach is working for them, it clearly is not. We have found that once A/R professionals are shown the benefits of moving to an electronic accounts receivable practice, and recognize how easily an intuitive electronic invoice-to-cash solution can be launched, they are sold.

Myth #2:

Electronic A/R automation solutions are too expensive

When people hear about monthly and per-transaction costs associated with automated A/R solutions, they think “I don’t want to add costs to my operations.” They believe using paper invoices, envelopes, and stamps can’t possibly cost that much. They may go further and rationalize that team salaries are sunk costs, and the labor is essentially free because they “already work here.”

This type of mental accounting erodes profitability and jeopardizes customer relationships. Regardless of how vendors send invoices and receive payments, there are hard costs (paper, envelopes, and postage, or software subscription and transaction fees) and soft costs (labor and time value of money) involved.

The accounts receivable cost to print and mail a single invoice, and later process and deposit a check payment, is estimated to be at least $7, running as high as $15 with the largest variables being the cost of labor and number of exceptions incurred. Their accounts payable counterparts incur similar costs, if not more, considering the effort it can take to approve an invoice payment (“where’s the PO? Did we receive the correct product and amount in good condition? Do we have any credits to apply?”).

If these numbers seem surprising, consider that if the accounting professional’s total compensation (salary and benefits) is $60,000 per year, then manual processes cost $0.50 per minute in labor alone.

On the other hand, electronic invoicing and payments are considerably less expensive. There are no hard costs associated with paper, envelopes and postage, and processing digital documents and payments is far easier and more efficient than stuffing and opening envelopes. In fact, electronic A/R solutions, by definition, process the payment and apply the cash automatically. From an A/R perspective, electronic invoice-to-cash solutions can decrease per invoice costs to as low as $1.50 each, with the greatest variable being the number of invoices sent per month and payments received.

This analysis does not take into consideration start-up or ERP integration costs because we don’t believe in them. The job of an automated electronic solution provider is to eliminate payment friction and hurdles to adoption. If a solution provider requires upfront fees, you need to look elsewhere. Moreover, if the pricing scheme requires a spreadsheet to comprehend, then please consider others.

The bottom line is that adopting an electronic, automated accounts receivable solution actually lowers costs. In fact, they can pay for themselves within the first few months of use.

Myth #3:

All integrations are difficult and always require substantial IT resources

It is true that some electronic invoicing and payment solution integrations can place a significant IT burden on the vendor, but it is certainly not all integrations.

There are roughly three types of integration. We list them here in order of most difficult to easiest:

1) The vendor needs to conform to the A/R solution requirements.
This can entail using the solution provider’s APIs or being forced to use their file formats.

2) Flat file transfers whatever form the vendor’s ERP can create, as long as it has the needed data fields. This is preferred by vendors because it puts more of the burden on the solution provider to create custom data mapping.

3) No ERP integration at all and payment requests are created on the fly.
This is the easiest and fastest way to begin requesting and receiving
electronic payments.

Almost all A/R solutions fall into the first and/or second categories, which is why time is needed to ensure the ERP can create the proper file format, connect the APIs or establish the secure FTP file transfer protocols. Time and effort are also needed to test the data transfers for all scenarios and ensure NACHA files and bank connections are created properly.

However, very few electronic A/R solution providers offer a no-integration option. No integration means that data does not automatically come from the accounting system or ERP. Instead, A/R inputs the customer contact and amount due into the I2C solution, which then creates a payment request and empowers the customer to pay electronically. We have found that this type of solution is perfect for companies that have relatively low invoice volume, but want to leverage the advantages of digital solutions.

No integration solutions are also great for companies that want to “test” an electronic solution to learn how their customers will respond. We have built a no-integration solution that is easy to deploy and only has transaction fees, no start-up costs or monthly fees. In the end, integration can be a task to get started, but it is manageable and worth the effort to realize the advantages and benefits of electronic invoicing and payments.

Myth #4:

Our customers won’t adopt an electronic solution. They prefer to pay with checks.

As vendors get closer to turning on an electronic accounts receivable solution, they wonder how their customers will react. Will they adopt the new technology? How difficult will it be for customers to learn the new interface? Are they open to changing behaviors?

These are very legitimate concerns. The customer drives the relationship and therefore has to come first. The good news is that, in our experience, customers have been very accepting of automated, electronic invoicing and payments, especially when there is a mobile option.

There are two keys to driving customer adoption of an electronic A/R solution.
First, the interface has to be intuitive and easy to use.
Second, customer options have to be comprehensive – the ability to review invoices to line-item detail, pay invoices, delay payments to a near-term date, create payment plans, raise disputes, review account statements, and store multiple funding accounts, at least.

If the solution only provides an electronic copy of the invoice and a method to make electronic payments, which is common for most payment portals, then customers won’t see a difference if they were just to mail a check. Why do they need to spend time logging into a portal when writing a check is just as easy?

Customers want convenience, security, and the ability to manage their account through a self-serve interface. Our experience indicates that if customers are provided with an electronic invoicing and payment solution that meets these requirements, they will readily adopt the new process.

Myth #5:

Electronic payments are not as secure as checks

In general, electronic payment security is as good as, if not better than, paper-based solutions. In a modern electronic payment solution, you are the only person who sees your credit card or banking data. Contrast that with how many people see your banking information when you send a check in the mail and the secure choice is obvious.

In a well-designed electronic payment application, your banking and credit card data is also encrypted from the moment you submit, whether during transmission or while it’s stored in a database. Modern encryption standards are extraordinarily secure, but your payment partner must take additional steps to ensure your data never falls into the wrong hands.

The difficulty, however, is how do you select a partner with a secure architecture and security-focused policies and procedures?

Thankfully, there are third-party compliance standards that cover exactly the policies and practices that ensure your data is safe. The two logos you should look for are those for PCI-DSS and SOC. A payment solution provider that has successfully passed PCI-DSS and SOC compliance standards has proven themselves to be good stewards of your sensitive data.

The PCI-DSS (Payment Card Industry Data Security Standard) set of requirements is developed and managed by the PCI Security Standards Council and is required by credit card companies to ensure the security of credit card transactions. PCI requirements cover everything from encryption standards to access to sensitive data to testing the security of the infrastructure itself. A company’s compliance ensures they meet technical and operational standards to secure and protect credit card data at all times.
SOC (System and Organization Control) compliance is a bit different from that of PCI in that SOC audits focus on payment solution provider’s internal controls and how well they adhere SOC standards. The SOC standards were developed by the American Institute of CPAs (AICPA) and its audits must be conducted by a CPA. A SOC report ensures that a company’s internal controls are robust and consistently followed, giving you comfort that they can provide you a reliable, secure payment solution.
The bottom line is that moving from a manual, paper-based accounts receivable department to a fully digital solution should not be arduous or risky, nor should it be intimidating. Researching and receiving demonstrations of the various electronic A/R solutions available today will help allay concerns, and get you and your team on the road to realizing the benefits of automated, electronic invoicing and payments.

Billfire’s Valet Payments is the ideal accounts receivable automation solution.