Starting down the path to digital supplier payments

October 2, 2024

The journey can produce a host of cost and efficiency benefits, but there are obstacles along the way. Our advice: Take it one step at a time.

Transitioning from checks to digital supplier payments — leveraging traditional payment types such as ACH as well as new instant payment alternatives — can be a winning path. Accounts payable automation and tools such as electronic invoicing free up time for your staff and can enable better experiences on both sides of the transaction, in addition to enhancing working capital, strengthening controls and reducing fraud risk.

It’s a road worth taking. But there are some potholes to navigate.

Adopting new digital payment methods often requires companies to make infrastructure changes and invest in new technology. Those investments can require both hard dollars and staff time to research the best solutions.

There also are hurdles to overcome when embracing digital payment technologies. For instance, your company might need to purchase a module to enable your enterprise resource planning (ERP) system to initiate a particular electronic payment type acceptable to suppliers in your industry.

You also must persuade your suppliers to get on board with electronic payment methods. Some may be very comfortable receiving checks. They have the staff or shared service center resources in place to process check payments, and they like receiving the check and remittance data together in one envelope. Thus, they may balk. So, expect to invest some time in explaining the benefits of digital payments.

Anu Somani, head of global payables and embedded payments for U.S. Bank, summarizes the challenge: “You can’t just switch on a light and suddenly you are digital. It’s time consuming.”

The key to a smooth digital payments transition

One of the most time-consuming aspects is vetting solutions and providers. That’s where working with a payments-savvy bank can streamline the initiative.

“The value of partnering with your bank on digital payments migration is that the bank can stitch it all together for you,” Somani says. “The bank can consult with you, and integrate with and work with your ERP provider, your invoice processing provider and other solution providers, and help guide the migration effort.”

How to begin: assess and create a roadmap

Collaborating with your bank on digital payments typically starts with an initial assessment. You will need to sit down with your bank’s team and walk them through your current supplier payment process. For instance, who are your suppliers? What systems do you use to disburse payments? What payment types do you use? And what does that payment process look like today?

It's important to start by diagramming the current process. You can then discuss with your bank the goals of your electronic payments’ migration and the new types of payments you want to introduce.

From there, the bank can help you develop a roadmap to drive your payment migration based on your appetite for change. Maybe you just want to switch from check to ACH payments. Or maybe you want to introduce multiple new digital payment options — like the RTP^® network or FedNow^® Service — and take advantage of prepayment discounts or rebates. In either case, the bank can help you map out immediate, mid-term and long-term steps.

Leverage payments migration tools

To help you migrate to multiple new payment types, some banks offer intelligent payment routing. With this tool, a company can send a bank a payment file and have the bank use business rules and an established network of suppliers ready to accept digital payments to decide the most appropriate channel for sending out each payment. 

Paying suppliers based on their preference can improve the strength of the buyer-supplier relationship and go a long way toward gaining suppliers’ support for your transition to electronic payment options. For instance, if you are making payments in the hundreds of thousands of dollars to certain suppliers, they might be willing to take an ACH but not a virtual card, due to the interchange fee. 

Intelligent payment routing automates and adds efficiency to daily disbursement operations, among other benefits. “By using an intelligent routing tool, a company can also outsource the storing of credit card data required for payment card industry [PCI] compliance as well as the management of supplier enrollment campaigns,” says Jessica Schopp, technical solutions consultant head at U.S. Bank.

At least a couple innovative banks are also supporting the move to digital payment technologies by offering an online directory companies can access to identify fintech software solutions that address their specific payment needs and are integrated with the bank.

“The larger your organization, the more time-consuming it can be to select a vendor and put them through the necessary vetting,” Schopp says. “It’s a lot easier to have a highly regulated bank do the vetting and onboarding.”

Break the journey down into simple steps

Sometimes when treasury managers hear “digital payments migration,” they envision an end-to-end, all-digital accounts payable optimization. And, for many, the thought of quickly transitioning to that type of new environment is intimidating. But, as your bank team will tell you, it’s okay to start out small.

“The journey to digital payments can be broken down into simple steps, whether it’s one business unit at a time or one payment type at a time,” Somani explains. “You don’t need to wait for a digital end-to-end life cycle to start experiencing the benefits for your business.”

There’s an old Chinese proverb: “A journey of a thousand miles begins with a single step.” When it comes to making the transition to digital supplier payments, you just need to partner with a trusted bank and take that first step.

As the payments landscape continues to evolve, U.S. Bank has the expertise and resources to help you build a comprehensive payments strategy both for today and the future. Contact us for more information.