A Question Of Balance: How To Get AR Into The Automation Mix

The Payments Podcast from Bottomline Technologies.

Justin Corum: Hello, and welcome to the Payments Podcast. My name is Justin Corum, Senior Director of Partnerships at Paymode-X, here at Bottomline, and I’m super excited to host today’s episode focused on how to get AR into the automation mix.

Now, you might be surprised that today’s focus is on Accounts Receivable, rather than Accounts Payables. After all, AP automation has been the star of the back office show for a few years now, helping banks and companies of all sizes become more efficient and move away from the expensive and hard to secure paper cheque.

It’s time to add some balance to that equation and give the AR side of the house some well-deserved attention. To help me do that, I’m joined today by Nick Babinsky, who is Senior Vice President and General Manager of Billtrust Business Payments Network, or perhaps better known in the market as BPN.

If you’re not familiar with Billtrust, their mission is to lead the digital transformation of AR. It’s cloud-based software and integrated payment processing solutions can simplify and automate B2B commerce, a subject that is of course near and dear to the hearts of us here at Bottomline.

Nick is responsible for the growth and commercial performance of the network, as well as the success of the businesses that use the BPN to transact with their trading partners.

Welcome, Nick.

Nick Babinsky: Hey, Justin. It’s good to be here.

Justin Corum: Glad to have you. Nick, as I said in the intro, there’s two sides to the house when it comes to accounting and back office systems.

I’ve been closer to the AP automation side as of late and have some clients go from manual processes that are expensive, draining of personnel resources, and lack the proper security to embrace all the benefits that automation provides.

But as you and I both well know, the buzz right now is all about balancing AP automation with AR automation. It seems to me that part of the reason that this is out of balance is because the lion’s share of the revenue in the form of interchange, of course, and that resulting investment has been on the payable side of the house. Not to mention the incentives that are in place for our customers here at Bottomline, the buyers, in the form of rebate.

So this, combined with the advent of virtual cards being sent via email, has certainly propelled businesses on the AP side of the house – such as Paymode – forward. But it’s almost as if the success of automation on our side has created unintended consequences on the receivable side.

So Nick, my first question to you is, what do you think has caused this imbalance?

Nick Babinsky: Yes, it’s a great question, Justin, and from our perspective here at Billtrust, I think what we’ve seen is historically, you know, innovation, automation, digital transformation, has occurred in many other parts of the business digitally around sales, CRM, you know, marketing animation, and over time we’ve seen more focus on the back office, right.

And we look at AT in particular, we’re seeing that opportunity to generate revenue, rebate incentives, and that created a lot of buzz, a lot of investment, a lot of focus on transforming the way business pay other businesses in the Accounts Payable space.

And so, with that incentive, you know, it led to the first move happening on the AP side of the house, so to speak, and unintentionally, when that first move happened, prophecies were changing the way in which business started to think about different ways they could pay vendors via things like virtual card or via product networks or via the modalities.

It really wasn’t contemplated how suppliers would interact with these new forms of payments, how they would support them and what types of prophecies would need to be enacted or implemented on the AR side to accommodate these payments in a timely fashion.

So, I really do believe it was kind of the first move around AP side and design different ways that were really conducive and really motivating for finance leaders in Accounts Payable to make changes happen.

But it really wasn’t reflected in the AR side as to how these changes would impact trade relationships, and I think we’re seeing that imbalance as more and more AP automation and digital transformation in the payables phases occur.

And we’re now seeing the desire – from our side, especially for AR side departments and players and providers – to relate balance the transaction, so to speak, to make it conducive for all parties participating in autronic transactions.

Justin Corum: Yes, it makes a lot of sense. And I think that balance is what we’re all after, right? Understanding both sides of the network and both sides of the transaction.

But let’s talk about why this issue actually is so important. We both know it’s out there, right, so we’re still seeing in the B2B space, over 40% of payments being made on paper cheque. I mean, that’s wild, right? And let’s be honest, no-one wants that. But finding that balance and that equilibrium between the two sides, knowing they often have competing interests, is really tough.

So we all know we could benefit from this, right? Most notably your customers, the suppliers, and my customers, the buyers, so, it’s super important that we get this put in place so that we all move off of that dreaded paper cheque that we all want.

And knowing all that’s transpired over the last two years with COVID, and one would think that this would have been accelerated, right? So, what’s your take on the importance of finding this balance between the two sides of the transaction?

Nick Babinsky: Yes, so I think the importance is we’re now recognizing the opportunity, in terms of both sides for AP and AR. If we achieve that digital state of commerce and transactions, commerce flows more quickly, meaning you can, as a buyer, get your good in services faster, right, because your supplier’s not waiting on a payment, or waiting on a transaction to release more credit on your trade perhaps to the supplier.

So, we know for the buyers’ side it’s important to have transactions flow quickly. Cheques are not fast, right, so the supplier – digital can mean faster capital back into their business so they can make payroll, they can buy their own business services, or they can invest in their business, and digital represents that option and that opportunity as well as ideally less cost, meaning if they do not intervene when it comes to a paper based transaction, they have succeeded in their AR department.

However, as we were just talking about with AP developments around new payment modalities and virtual cards especially, even ACHs are often more problematic and challenging for suppliers to receive, because money will come into the bank with a merchant account, and the remittance, the data that tells the supplier, tells the AR department, “What the heck is my buyer paying me for?” is often decoupled from the money. Unlike cheque, where you’re getting that payment mechanism instrument in the mail with the data that tells you what invoices are being paid with that cheque.

So decoupled nature has really left a certain taste in the mouth of the AR department, saying, “isn’t so great because I’m not achieving these outcomes that I’d hoped. Automation touches transactions, you know, faster payments because I’m mainly having to recouple or bring these transactions, money and data, back together and post them and process them in my system.”

So, I think what’s happened, is we’ve recognized the opportunity, but that map as to how both sides get to that destination of touchless and fast transactions has been so unclear as to, you know, how to navigate this.

And I think that that is where the opportunity lies for buy side and sell side, or AP or AR participants to work together to kind of forge those gaps and make that path towards digital transformation achievable.

And I think that’s largely what’s going to be required to continue to chip away at the dominance that is the paper cheque in the mix of B2B payments in, especially the United States.

Justin Corum: Yes, I would agree with you. And if you think about what is it – and you described it there very well – what it is about that paper cheque that people are still clinging to? Why does it still work? And my sense is that it’s because it’s the standard.

So, issuing banks, AP shops, all cut cheques that look and feel mostly the same. The remittance is mostly the same when it comes to that cheque – largely – using old traditional lock boxes.

So, you mentioned earlier you’ve got different payment types flowing into your customers which also have different remittance styles and files coming into your customer. Talk about that a bit, and how, I mean, do you think that’s ultimately the answer there, is to get to that ubiquity? And is it standardization like a cheque, but in some digital format?

Nick Babinsky: Yes. So, a super itchy topic, right, in the sense of as much as we beat up on cheque in this industry, it is quite ubiquitous, and the fact that it is so universally accepted in a sense of a supplier in AR department may not do cheques, right. And they’re only selling permutations of a cheque that can be presented to them, so the gap prophecies that accommodate kind of take in processing the cheque.

On the AP side, what you need in order to do a cheque? Really just a mailing address of the supplier, right? And of, course your bank account to fund that cheque. So, it is straightforward. It’s expensive, it’s slow. There’s risk tied to fraud with cheque, right? So, it is not the most optimal modality to make a payment, but it works, right?

And so, if we think about optimizing, and if we think about what is ideal state; digital, fast, low risk, low fraud, touchless, those are all criteria for what we think about when we design the perfect payment, right, or we think about what could be the perfect payment.

And you mentioned something very important, which is standard. I think the US, compared to other markets around the world is different in the sense that there are less standards driving consistency when it comes to how businesses pay other businesses, or businesses receive payments from their business customers.

And so in absence of those standards – and I think we’re at point of maturity in our B2B eco system, especially in North America where it is going to be extraordinarily hard to get all these millions of businesses that are already using different ERPs or accounting systems, or different banks or different financial technology providers to somehow come back to one standard, or very few standards.

It's one of those things that, if that happens, it’s going to be a long, long time, right? And so, what do we do now? What do we do in absence of standards?

And I think that that is where interoperability is key because if we can figure out ways to create interactions, integrations between buy side systems on an AP side and on the AR side, we’re going to create those opportunities to translate the data, translate those payment mechanisms into ways that just work for your buyers, for our suppliers, and other partners that we may work with in The States.

So, interoperability is probably the key thing versus the standard, and allowing that to gain – I wouldn’t say ubiquity – but I would say transformation and adoption of AP and AR set prophecies to autronic via what we’ve accomplished today as an industry.

Justin Corum: Yes, I’m on your side on this one. I mean, historically, The States have never done too well at adopting anything. If you look at – specifically within payments – if you look at even something as seemingly as easy or simple as EMV, right, and how long it took us here in The States to even adopt that sort of technology. Sure, there was a cost associated, but we were slow adopters compared to other countries.

But you bring up a good point, right? So, if you think about using EMV as an analogy here from a standardization or just some sort of consistency in that mechanism; the brands really took that head-on. We’re seeing the brands hop into this side of the equation as well.

There are other interests, such as the clearing house, etc. that are really trying to sort this out and build that single pipe, so to speak. Or at least some sort of normalized experience for both sides of the transaction. And we’re seeing other instances, where Accounts Payable and Accounts Receivable companies are working together to make that better.

So, I don’t know that all of our listeners know this, but Bottomline and Billtrust actually work together in the marketplace, and partially because we benefit from focussing on AP, and that’s the message we take to our buyers.

So, organizations such as Billtrust have really helped propel our adoption to card because you’re providing that experience. It helps for more satisfied customers on our side, and ultimately better communication.

So Nick, obviously this relationship aside, what do you see in the market in general about AP and AR working more closely together, and will it take really all of us coming together to do this, or can it be done kind of bit by bit?

Nick Babinsky: Sure. So, what I’m going to do, is I’m going riff on your EMV analogy to answer that question, right. And so, EMV was compelling that, where like you said, the brands recognized a tremendous opportunity to reduce physical card fraud, right, and so the brands were really leading that change in the ecosystem.

But what the brands recognized, is, “Oh my goodness, we need lots of participation to change card holder behaviour. We need to get EMV enabled, chip enabled cards and into the hands of card holders.” And we don’t necessarily believe that people are going to, the party is, they’re going to get new cards in the hands of card holders are going to be the same parties succeeding again in the coffee shop, again in the major redub brands, are getting all those different locations that actually use card had to change their physical terminals, right, the devices to accept card.

So, taking the EMV example forward, it’s very, very similar on AR and AP; there is not going to be one party that succeeds in getting all business payers to adopt digital payment. There’s not going to be one party that succeeds in getting millions and millions of businesses around the world to accept autronic forms of payment in a small fashion.

So it really is going to be an effort around co-ordinated parties in this ecosystem working together, because from our perspective at Billtrust, we love working with partners like Bottomline, because you make our lives easier. You are working with buyers to convince them of the benefits of autronic payments.

And then our suppliers that we work with directly benefit from that because they’re saying, “Gosh, it is so great, there are other forces out there helping me get paid faster and convincing my buyers to give me data in a way that it makes these transactions touchless.”

So, it’s critical, right? Collaboration and interoperability is critical because we all represent different sides of the transaction, different sized buyers, different sized suppliers, sometimes different vertical markets, different geographies, and if we really want to see that massive, massive shift in the digital transformation of AP to AR space, it is going to require all of us to recognize that there are participants out there that accelerate our own success and the success of our customers.

Justin Corum: Yes, I agree mate, and I think back to why we don’t have this adoption. We have these parties working together; I think it’s the evolution of this is absolutely occurring. I think we’re starting to see – even in the Payable side – we’re starting to see where we’re getting more suppliers that are open to acceptance because of services that companies like Billtrust are providing.

But there still exists pain points and friction in the process. We talked earlier about the different payment types. We talked earlier about the different remittance types, but let’s hone in and focus on some of these critical friction points that organizations such as ourselves are looking to solve.

And I’ll be honest with you, on the Payable side, the incentive is there, so our buyers are reaping monetary benefits by actually going to an electronic payment type. On your end of the equation, there are benefits and they are tangible, but they’re tougher to explain because there’s a cost associated with that.

So, if we start thinking about specific friction points and different pain points in this transaction – and I’m thinking really more so card at this point, virtual cards for electronic payments – cost has to be addressed, right? I think even our friends within the card brands would agree that, but to me that seems the primary barrier to entrance; it’s actually getting that cost where it's something that’s palatable, but it also makes sense.

And then I’d say the second thing to that, is really helping to deliver that remittance in a good sense where they can pick that up.

So on that front of pain points and us trying to get to this utopian experience for both sides, talk to me about what you think those unique pain points for AR, and perhaps even how folks like us on the Payable side should be thinking how to help mutually solve these problems.

Nick Babinsky: Sure. So, I think you highlighted a number of very interesting considerations there for suppliers to participate in autronic transactions.

Card certainly being one of the more exciting buy side, AP side opportunities to digitize payables, but on an AR side, card is often look at with lots of questions, like, “Is there value in my business as a supplier taking card?”

And along with that macro question is a lot of kind of secondary thoughts, which is, “Is my customer going to be able to pay me faster?” or conversely, “If I don’t take this card, will my customer buy elsewhere?”

“If I take card, does it truly eliminate that AR clerk, that classification manager from having to touch the transaction?” Or “Will there still be an email at the end of the day?” Or, “If there’s a way that I engage with an AP side party, or with my buyer directly to enact some kind of straight-to processing, is that process going to be a one-off for me, or can I really look at applying that straight-to prophesying approach with all buyers across an issue or across of AP technology?”

And I think that that is all really floating to the minds of the AR community right now as more and more buyers, and more and more AP side participants move towards virtual card.

So I think that ultimately it’s right now, card in one way is being treated like a one size fits all option for suppliers, meaning here’s the virtual card and here’s the price, which I think is problematic. There are things like level, there’s starting to be more things like interchange rates.

But ultimately my point to this seems to be flexibility, because you and I don’t pay the same price for all the solutions, we pay different prices based on the need that we have for something. We look at the attributes and how they meet up with our pain point.

I think flexibility is going to ultimately be a key requirement for an expansion of card, where card makes sense. But I also think – or going back to the one size fits all – it’s simply not, because every virtual card, depending on which platform issues it or sends it, looks different.

And so I think that there’s going to be a need for us to try and insulate AR departments, which is what we’re focussing on right now from if a customer wants to pay with card, if a customer wants to pay with ACH, if a customer wants to pay with wire, or some other autronic modality like Paymode-X, we believe, our hypothesis is the more that we can insulate AR departments from all the different types of autronic options their buyers adopt and use, if we can insulate them from the kind of differences and the characteristics of each of them so that at the end of the day the supplier gets paid as quickly as possible with as little touch as possible, they’re going to start to look at the costs associated with those payments as an investment; an investment in reducing manual labour, an investment in getting paid faster so they don’t need to rely on other forms of credit through a lender, or debt, or other forms of financing that as soon as interest rates climb, are going to be a factor.

So, the more that we can focus on the needs of the supplier and not just the incentives of the buyer, it’s going to help us shift away from just saying, “Okay, it’s purely interchange that’s top of mine,” it’s going to be the all-in considerations of everything I just mentioned that’s kind of on top of the minds of the supplier, if that makes sense?

Justin Corum: It absolutely does. I mean, there’s an inflection point here that ultimately needs to happen. I mean, sitting on the issuing side and the payable side of the house, it would be remiss not to say that we have appreciated the interchange revenues for years in this, right, but we’re just not getting the adoption that we need.

And so I think providing those tools, providing scalable tools, and normalising those experiences you’ve just described is key for this.

So, we’re nearing the end of the time here, Nick, and I want to leave the last question for you. Can you give us two or three takeaways that are most important to Billtrust right here and right now around this?

Nick Babinsky: Yes, certainly. I think whether it’s for Billtrust, whether it’s for AR departments that we work with across midmarket or enterprise orientations, I think the first is to recognise that – you know, we talked about this earlier – it’s going to be collaboration; it’s going to be coordinating with other players in the ecosystem to help our buyers, help our suppliers transform their financial prophecies.

Because again, definitely the business is out there, and working together to help these counter parties is going to be critical, because at the end of the day, we succeed when we help them build really strong trade relationships with one another; when we can help facilitate the commerce and the transactions and interactions between one another to the point and to the extent where they don’t really have to even think about the payment, right?

We all as consumers, are so excited about the notion of, “Hey, one day, if I could go into one of these Amazon Go stores and not have to wait in a queue or a checkout line, and thinking about pulling a card or something else out of my wallet, or even pull out my phone, I can just walk out.” That’s when technology is just succeeding, right. We’re eliminating time otherwise spent doing meaningless activities, like waiting to do a checkout.

So, my point there is, the more that technology works together in an AP and AR space, we’re going to be doing our job of making payments less of a consideration for these buyers and suppliers so they can just go about running their businesses, interacting with one another successfully without a lot of intervention.

So, number one is collaboration and interoperability. Number two – and I think Bottomline Paymode, from our perspective does a great job of this – which is recognizing the need to have flexible options.

Again, once solution does not serve the needs of all trade relationships, so it’s thinking about that mix, or that blend of options that are going to accommodate buyers and their needs, accommodate suppliers and their needs. Accommodate systems, right; those buyers or suppliers may be using a variety of accounting systems or ERPs or banking relationships.

So, recognizing the need to be flexible as a solutions provider is what we have seen as key in success with our partnerships for our clients and in partnerships for organizations like Bottomline.

And I guess finally, really, at the end of the day, it’s about the customer success. We think there’s staying power in relationships when you really focus on what their ultimate outcomes that they’re trying to seek are.

So, for our AR side, it is reducing expense, it’s reducing risk, it’s helping our business grow, right. You might think about back office automation as simply as a cost reduction play, but really if you think about where AP and AR sits; on the AR side, if you are not helping AR departments and CFOs and treasurers get paid by their customers, that leaves friction in the most frictionless profit as possible a way possible, their buyers may choose to buy elsewhere because they don’t want to invest the time to figure out how to pay their suppliers. So, we think growth is an important outcome of AR automation.

And on the AP side, I’m certain that you all think about the outcomes for your own buyers, their organizations and CFOs, the accounts payable directors, finance managers, and helping them drive not only cost reduction, but risk, improve the risk stance and then certainly where you can grow revenue through rebates and incentives, all the better.

And so, I think, just focussing on the outcomes of the participants of our ecosystem is probably our third and final takeaway. Okay, it’s key for hopefully audience numbers that are thinking about AP and AR transformation like we are.

Justin Corum: Yes, well said. I mean, it’s certainly not a small hill to climb, and all of us in the space have been trying to really get through this for years and years. And I think it’s going to take cooperation from all of us, is what I heard; I think we have to find a scalable solution in this.

Well Nick, I appreciate your time today. Fantastic conversation. Always good talking to you.

And so, folks, that was the latest Payments Podcast, and again my name is Justin Corum, Senior Director of Partnerships here at Paymode-X at Bottomline, and today my partner on ‘How to Add AR to the Automation Mix’ has been Nick Babinsky, Senior Vice President, and General Manager of Billtrust Business Payments Network.

Thanks for listening, and I’ll see you next time.