The digital modernization of accounts payable and accounts receivable

Modern. It describes everything from art to language to design—even treasury management. But what does a “modern” accounts payable (AP) and accounts receivable (AR) function really look like? And how many companies have realized a fully automated and efficient digital environment?

Deluxe was curious, so we teamed up with Strategic Treasurer to survey finance professionals around the country about their goals, challenges and progress related to modernizing their AP and AR processes. We also gathered data on how COVID-19 has impacted (and accelerated) treasury management’s efforts at automation and digitization. Here’s an overview at some of the top insights from the newly published research report, 2022 Modernizing AP/AR Processing.

Automation and efficiency epitomize modern finance

A modern treasury emphasizes tools and processes that increase efficiency, reduce costs, streamline access to information and use internal resources wisely. These improvements produce measurable value during regular operations and are even more prized during the COVID-19 pandemic.

The survey, conducted in July and August 2020, revealed that companies deploy a wide variety of solutions to achieve their modernization goals. These include digital payment methods, electronic reporting and advanced technology like artificial intelligence (AI) and bots.

In accounts payable, early adopters report value in digital tools such as:

• Scanning and Optical Character Recognition (OCR) of incoming supplier invoices
• Workflow management solutions to streamline tracking, communication and approvals
• Vendor management services
• Sanctioned party filtering

In accounts receivable, modern treasury operations are taking advantage of:

• Electronic delivery of customer invoices
• Scanning of incoming payment information to reduce data entry
• A single, integrated receivables file to accelerate posting
• Onboarding of customers from bank/third party
• Automated bots that can log into customer AP systems and retrieve payment credentials

Outsourcing gaining traction as flexible solution

Outsourcing is another popular option for developing a modern AP and AR function. Outsourcing to banks, fintechs, payment processors and other specialty providers gives companies the benefits of digital solutions, with the added flexibility to scale up or down as volumes demand. There’s also less upfront investment in capital equipment or in-house systems.

As the Strategic Treasury research showed:

• Accounts payable regularly trusts third-party providers to execute check printing and mailing and electronic payment delivery.

• Accounts receivable finds value in outsourcing traditional lockbox services, as well as more advanced solutions for electronic payments, like integrated receivables and AI-powered invoice matching.

Greater straight-through processing rates, stronger cash flow, better control of timing and less strain on in-house resources are all benefits of an outsourced approach.  Outsourcing also has the advantage of allowing companies to leverage the latest technology through a financial institution or third-party resource, without the time and expense of an internal systems implementation. This easy transition makes outsourcing particularly appealing during the difficult working conditions of the COVID-19 pandemic.

COVID-19 accelerates electronic payment, invoice usage

As expected, the majority of AP and AR leaders surveyed experienced some disruption to their AP and AR operations with the onset of COVID-19 this spring. However, the Strategic Treasurer research showed most organizations weathered the initial months of COVID-19 well, thanks to strong business continuity planning (BCP).

Eight in 10 companies reported their BCP within finance as “adequate.” Because treasury management typically takes a leading role in identifying and managing risks related to cash flow, payments and security of information, this advance preparation paid off when put into practice.

The swift move from office space to work from home did create new hurdles and unexpected challenges for outbound and incoming payments. Companies that relied heavily on manual processes, paper-based workflows and payments requiring physical signatures or postal delivery all incurred issues. The need for electronic methods also affected customers and vendors.

COVID-19 contributed to an increase in electronic activity for both AP and AR. The pandemic boosted electronic invoicing, digital payment methods and online communications, according to those surveyed.

The pandemic also has finance leaders contemplating completely new ways of handling their day-to-day operations. For example, while nearly eight in 10 companies currently operate their AP and AR functions in house, eleven percent of these have already outsourced some activities or are planning to outsource because of the pandemic. Research shows outsourcing may even double in some areas of treasury operations.

Strong business continuity plans lessen pandemic’s impact on staff

The pandemic and the necessity of a home-based workforce did reveal some gaps. Across the board, efforts to maintain planning and strategy suffered. Accounts receivable reported slightly more challenges than accounts payable in maintaining operations.

Internally, the biggest COVID-19 challenges for treasury management included:

• Cross-training of staff
• Safety of employees
• Working capital fluctuations

Externally, more than half of respondents struggled during the pandemic to balance company needs with customer challenges. Slow mail and postal timeframes also created issues and delays.

Yet despite these hurdles, treasury management is proving resilient and adaptable. Nearly two-thirds of companies report they will allow more work from home opportunities once the coronavirus subsides.

Goals and challenges in modernizing AP and AR operations

Modernizing operations in AP and AR remains a top priority according to the Strategic Treasurer research. In fact, COVID-19 has created a new urgency for digital transformation. Nearly half of those surveyed report accelerating their move to more digital information and processes.

The survey clearly demonstrates the importance that companies of all sizes place on increasing efficiency, automation and digital tools within their AP and AR functions.

Modernizing treasury operations helps companies to:

• Generate new efficiencies
• Reduce errors
• Increase control
• Enhance security
• Improve forecasting accuracy

The results also show that organizations can find measurable value in incremental progress; a modern operation does not require an exhaustive budget or a simultaneous overhaul of all AP and AR systems. Rather, most finance leaders report a hybrid model that marries some legacy processes and systems with a mix of new technology, vendor-based solutions and outsourcing.

Both AP and AR ranked “automation” as a chief opportunity for improvement. Leaders surveyed are eager for solutions that reduce manual processes, improve integration with banks and trading partners, eliminate paper, digitize communications and streamline forecasting.

In AR, integrated receivables solutions are among the top priorities. Thirty-eight percent already have a solution in place, with another 27 percent interested in adding integrated receivables. Electronic bill pay platforms, which issue customer invoices via email and PDFs rather than through the mail, are also popular.

Both solutions demonstrate the potential of cutting-edge applications to revolutionize the AR and AP functions—without requiring extensive technical implementation by corporate customers. Instead, banks and third-party providers can apply AI and other innovations to a company’s invoices, receivables, payables or customer data to increase efficiency, accelerate timeframes and improve straight-through processing.

These types of solutions embody the true power of modern treasury operations, where companies can leverage best-of-breed technologies through a combination of in-house implementation, cloud-based solutions and outsourcing to trusted providers.

Smart partnerships—between corporate treasury, banks, fintechs and other industry innovators—are another hallmark of a modern treasury function. They help AP and AR overcome some of the most pressing (and familiar) obstacles to automation and efficiency, including a lack of internal IT resources and competing budget priorities.

Cautious optimism about the road ahead

Accounts payable and accounts receivable have come a long way in a few short months, spurred by COVID-19 necessities to reduce their dependence on paper, convert manual processes to electronic and overhaul operations dependent on physical office buildings and in-person gatherings. While the road ahead remains uncertain, there’s cautious optimism about the opportunities available for treasury to modernize, digitize and further automate core processes.

Get even more details and insights from this on-demand webinar, which provides an in-depth examination of the 2020 Modernizing AP/AR Processes Survey findings. Learn about  best practices and plans for your enterprise, the influence of recent disruptions and key drivers for modernizing and automating AP and AR processes.