The Evolution of Integrated Payables: Making the Most of Available Tools and Strategies

Driven by technological advancements, companies are increasingly focused on becoming efficient in their cash management, payment process and supply chain management. Historically, business-to-business (B2B) payments were dominated by checks, which started to move towards simplistic check to ACH conversion through initial digitization initiatives. These were largely driven by internal treasury and accounts payables functions as simple cost reduction and efficiency projects. Other internal stakeholders, such as procurement, were often not an active part of the process.

Over the years, the definition of digitization has grown more sophisticated, especially on the payment side of the equation, presenting treasury with a bigger cash management opportunity. In the push to electronify payments, the menu of options available to both the payer and supplier has multiplied. New innovative payment methods such as Supply Chain Finance, Dynamic Discounting and Virtual Cards are transforming the Payments function from a cost center to a profit center that is aligned with corporate working capital and cost reduction objectives.

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In addition, these relatively new tools provide enhanced visibility into the financial health of the supply chain and help further solidify critical vendor relationships. However, taking full advantage of these tools requires careful analysis of the spend profile, consistent execution to ensure success with suppliers, proper alignment between Treasury, Account Payables, Procurement and IT organizations, and constant monitoring and tracking of progress to ensure alignment with corporate objectives. As companies continue to optimize their payment processes, it is becoming increasingly clear that choosing the right provider with experience and expertise across products is critically important to the success of these initiatives.

Integrated Payables

With the variety of payment options available to payers and suppliers today, it is more important than ever for Treasury and Accounts Payable to fully understand the intricacies of each option and how they will impact the organization and that of their suppliers.

While the basic electronic payment methods such as ACH and wires continue to evolve, the layering of financial tools, including Supply Chain Finance, Dynamic Discounting and Virtual Cards, creates exciting opportunities for corporations to achieve maximum financial efficiency within their supply chain payments. These tools can be deployed across a supply chain to provide a holistic solution that caters to every supplier, irrespective of their size, spend or cost of financing.

The technological advancements also allow for quick deployment of these solutions with the ability to customize for specific supplier needs such as receiving detailed remittance information in different formats with direct delivery to the Supplier's ERP system.

Treasury organizations are increasingly turning to their banking providers to help them define and implement a payables strategy that is aligned with their corporate objectives and can create value across their supply chain. As a trusted advisor to our client and leading innovator in the banking industry, Citi believes a holistic solution will lead the next wave of digitization and efficiency gain for clients.

Keys to Developing a Successful Integrated Payables Strategy

The first step in developing a successful integrated payables strategy is building a business case based on a complete understanding of the objectives, overall opportunity and how the different payables components fit with the organization's specific needs and those of its suppliers. This requires extracting information from across the organization by engaging all relevant stakeholders, such as Procurement, Accounts Payable, and IT, who all have oversight over critical internal functions. Oftentimes, the decision around payments is taken on a siloed basis where either limited possibilities are considered or only some functions (e.g., Procurement) are consulted. This could result in tremendous execution challenges or unrealistic goals, leading to project failure.

Internal coordination is absolutely crucial to the success of an integrated payables strategy. In addition to these stakeholders, achieving buy-in from the CEO/CFO could be vital for ensuring complete cross-functional coordination and successful execution.

Once the business case is finalized, it is critical to choose a partner with extensive knowledge of these products and one who is experienced in executing complex strategies. Global execution capabilities should be a key selection factor if the buying centers or suppliers are located in different geographies.

Taking a more comprehensive and strategic approach that includes a variety of payment options offers the greatest opportunity for success.

Lingering and Emerging Challenges of Digitization

While the trend toward digitization of payables is continuing to grow, there are lingering and emerging challenges. One of the most prominent concerns is threats to cyber security, which have become familiar fodder in the news.

As a result, treasury needs to evaluate solutions with cyber security in mind to help ensure underlying electronic payment identity information is protected. This means making sure the right encryptions and safeguards are in place. An effective integrated payables strategy should make cyber security a vital pillar.

As corporations increasingly rely on leading banking platforms such as Citi's for their integrated payables solutions, they are able to leverage bank-grade, secure environments to help collect and maintain data on an ongoing basis. Sharing some of the cyber responsibility with financial institutions, which are already extremely focused on providing robust security, can often make good treasury sense.

Another challenge corporates face is that as the technical complexity of payables increases with the expanding variety of options available, many organizations are hamstrung by Treasury, Accounts Payable, IT and Procurement resource constraints. This requires a careful assessment of the provider's connectivity options. The simplicity of the connectivity — using a single file and single reconciliation process — can alleviate pain points for internal technology teams, putting less stress on limited resources without compromising the ability to offer a wide array of payables options.

A final factor to consider is that with greater complexity comes challenges around supplier enablement. Today, with more payables options available, a specialized team is required to reach out to suppliers and perform the conversion process by selling the specific value proposition devised for every given supplier.

Welcome to the Era of Specialization

With the expansion of payables options — from virtual card accounts, dynamic discounting, to supply chain finance — Treasury faces far greater challenges than at any time in the past. Today, business case analysis is more complex, deployment is more challenging, and the supplier enablement process is more difficult. We have entered an era of specialization where corporates are best served by working with a specialist provider who can help them achieve their working capital objectives, and enable them to extract greater value from the supply payables process.

Ambrish Bansal, Citi