How payment diversity can create pain for accounts payable
There are lots of reasons why it makes sense for a company to have multiple payment accounts, but nobody thinks much about the pain it’s going to cause in accounts payable.
It’s one of those hidden back office problems banks and traditional financial service providers have never been able to solve, so accounts payable professionals have found a way to live with it. But today there are ways to live without it.
How does a company end up with dozens, or even hundreds of bank accounts? It’s not an uncommon situation for a large enterprise, especially in industries such as hospitality, construction, or health care, where there are multiple locations and business entities under one umbrella.
Or, maybe the company has grown by acquiring other companies, as is common in high tech, and they centralize accounts payable but retain the separate bank accounts.
According to the 2019 AFP Payments Fraud and Control Survey, 83% of companies with over $1 billion dollars in revenue have more than five payment accounts, and 46% have more than 25 accounts.
No matter what the reason, making payments from multiple bank accounts creates a lot of complexity in AP. It makes cash management difficult, increases the risk of errors and fraud, and creates an ongoing nightmare when it comes to reconciliation. Fortunately, new payments automation technology can help address the challenges of making payments from multiple accounts.
Most companies are contending with four different payment workflows—check, card, ACH and wire, or five if you’re doing international payments. Basically, you can multiply the number of bank accounts by four or five, and that’s how many processes you have to manage.
But at least those processes are pretty standard. A check is a check; a card is a card; NACHA sets the standard for an ACH file; and a wire is a form to fill on a bank portal. With payments automation technology, you can wrap all of those workflows together in a single dashboard. Payment is intelligently routed from each account by the most advantageous means—you no longer have to care what type of payment the vendor accepts. It’s all taken care of for you.
The dirty little secret, known only to accounts payable professionals, is that there is no standard for a reconciliation file—or even a requirement to send one.
Each bank and card provider can send it in a different format, with different information, or not at all. That makes reconciling payments data with the accounting or ERP system—or multiple accounting or ERP systems—exponentially more convoluted. It's no longer X number of payment types times Y number of bank accounts. It's a different procedure for almost every type of payment and/or bank or payment provider.
That amount of complexity and manual work inevitably leads to a higher error rate. And, it opens you up to more instances of fraud. According to the AFP survey, 72% of organizations with $1 billion or more in revenues and more than 100 payment accounts experienced attempted or actual payment fraud.
Since daily reconciliation is cited as the top defense against fraud at companies of all sizes, consistently receiving standardized, easy-to-digest reconciliation reports would help mitigate the fraud risk associated with multiple payment accounts.
Until recently, the only way to reconcile multiple accounts was by throwing a lot of people at the problem, or by bringing in a shared services provider. Fintech business payments providers are leveraging the cloud, APIs and online supplier networks to fill the gaps in workflow automation and data transfer that have been left by banks and traditional financial services firms.
You can easily make payments—including international payments—from multiple bank accounts, and push a standardized reconciliation report back to each, all in one easy process. Some payment platforms can even push card rebates back into the right accounts.
This is all possible when your payment provider stores payment, bank, and vendor data in one cloud platform, and can use technology to automatically match all the data up, pour it into a uniform report, and push it back out to the payee. That’s impossible when you’re working directly with lots of different banks and payment providers, because no one entity has visibility into all of the data.