Current Trends and Realities of AP with Deluxe

Announcer  00:02

Welcome to the Treasury Update Podcast, presented by Strategic Treasurer, your source for interesting treasury news, analysis, and insights in your car, at the gym, or wherever you decide to tune in.

Craig Jeffery  00:19

Welcome to the Treasury Update Podcast. This is Craig Jeffery, your host today. Our episode is on current trends and realities of AP. I’m joined by Steve Gaida from Deluxe. Steve, welcome to the podcast.

Steve Gaida  00:33

Hey Craig, thanks for having me.

Craig Jeffery  00:35

I think it’s great that we get to do a podcast to talk about some of the findings. We’ve done a webinar, we’ve put out a report, and we’re looking forward to that. So, thank you, and Deluxe, for underwriting this year’s edition. And to those more than 115 respondents, thank you for taking the time to share what your company is doing, thinking about in your view. You can find the report and get the report for free by looking in the show notes, or if you go to strategictreasure.com forward slash surveys forward slash, you can download it there. The survey, a quick summary of the survey, we ran this for 28 days, a little less than a month. The executive summary of the report highlights a number of the key findings, but why don’t we step through three of these for a quick introduction, maybe Steve, you could start us off with the correlation of fraud pain by size of organization.

Steve Gaida  01:27

Yeah, so one thing that we saw clearly in the survey was the larger the business, the more concerned they are about the pain of fraud, and I really think that there’s probably two angles of that: one, the bigger you are, the more payments that you’re sending, so the more apt you are to run into situations that really hurt you and teach you the lesson to put to the protocols, the procedures, all of those processes in place to protect you against fraud, so it’s not really just losing the money, but it’s also the manual work and all the processes that go into keeping your business safe.

Craig Jeffery  02:04

The second item that we highlighted in the executive summary is that the barriers to automation AP were two items that at least one of them comes up fairly regularly, is the availability of IT resources and system limitations, so it resource availability, executive resource availability shows up regularly. System limitations is certainly rearing its head, that’s impairing, impeding the ability to automate AP.

Steve Gaida  02:33

So, the classic struggle that you run into as a business is you have only have so many IT resources, and really, where are you going to push those chips in? Where are you going to spend your money? And what happens time and time again is, if we only have a limited amount of it, and we can spend those resources on building products for our customers that are going to make more revenue versus products that are going to save our AP team time, when you have those two against each other, leadership teams typically go towards the revenue as opposed to the savings, because it’s, it’s a quicker win. The visibility is easier to see, and you typically lose those types of arguments. Some advice: really work out the use case, figure out how many seconds it takes to do each piece of the process, and then also it’s not just the work that you’re doing this year, but it’s the work that you’re doing year after year after year after year to really help highlight how much you can save with payments automation, and then the last piece of it, if you’ve been down this path where you’ve put together your argument about why payments automation is so important, and you’ve lost year after year after year. Try taking a smaller bite of the apple. You don’t have to automate the process front to back fully. That’s the dream. That’s where everyone, that’s where everyone wants to go. But you can start with a more manageable piece, and looking at it more individually, and sort of saying invoice scanning is really tough for us, or pushing out the payments is really hard, and over time you can make jumps and get to where you need to go, because the smaller part of the project that you’re taking on, the more likely it is to need less IT resources, and there’s some partners out there where you don’t really need it resources at all, they’re more plug and play.

Craig Jeffery  04:25

Steve, one thing you and I spoke about, which anybody who’s listening, I think, might find this particularly interesting, because mid market companies had the highest level of pain with system limitations, that was the top issue, and so two thirds of respondents who were mid market identified that, and so that was higher than large companies, who only 40% had identified that. So, the lack of resources, they may mid market companies may have a lot of systems, but not the same level of resources as large companies, and so this is that. If you’re a small company, maybe you have one system. If you’re a very large company, have multiple systems, but more resources and can adapt, and then the mid market runs into the challenge.

Steve Gaida  05:09

Totally.

Craig Jeffery  05:11

Of the top pain points, there’s manual, you know, manual processes is one of those. What are some of the top manual process challenges that are pain points for companies?

Steve Gaida  05:20

When you’re looking at, you know, some of the top pain points that come across in terms of manual processes from a payments perspective, AP teams can sometimes get caught in a catch 22 One of the things that drives a lot of manual kind of day to day work is payments going through the mail, they’re getting lost, they’re getting stolen, vendors are calling you, disrupting your work, and it’s really, how do you get those payments out of the mail? So, AP teams have a limited amount of resources, and you’re not going to convert your vendors to electronic payments if you don’t give them choices. Oftentimes, those choices mean that AP team now has more work to do to push out multiple payment streams instead of just the one or two that they were pushing out before, so really, when you’re kind of thinking about the payments process and getting payments out, how do you do that in a way where there’s not more work for your ap team, more files to push more formats that need to be catered to each vendor, different time requirements that those files need to be passed. The more work that you have, the more chance that there is for those process breakdowns. So, really think of your AP team as a customer, and sort of think about what if there was a way where I could just have them manage one payment type. Someone else could help the process with dealing with how does each vendor want to get paid, and how to push out each one of those different payment types. And then they would just have to reconcile one payment type from a payments perspective. That’s one of the things that we hear over and over again, is that it’s hard to give those choices with the current resources that they have.

Craig Jeffery  07:06

Yeah, the opening of Pandora’s box, all these payment types, all these different rules, all these different times in the world of choice, right. Excellent. So, yeah, so as we, as we move on from the some of the highlights and the executive summary, let’s get into disbursement, since Steve, this has this question I’m going to ask you as a little bit more of a setup. So, on the disbursement side, you know, this survey highlighted a number of areas that were of a concern or focused on disbursements, and I wanted to ask you to comment on three of these areas. One is managing the new, the new payment rails, new payment format, some of the stuff you just spoke about, and the increase in compliance requirement, that’s one, protecting against fraud. This is a multi-year area of focus, so fraud is number two. Three is adding or changing vendor payment information, this is this is an efficiency play, and also in that arena of protecting against fraud, so let’s start with managing the new payments, rails, and formats. What’s changing, and how are those changes creating the pain we see reflected in the numbers?

Steve Gaida  08:11

In payments, one of the struggles to go digital is you need to collect data, usually it’s a routing and account number to push different payment types, you know, there’s ach, there’s same day ach, things like that, that are out there, but one of the things that we’re seeing from a compliance perspective is some businesses are sort of saying it is a risk for us to have that data, fraudsters are targeting businesses to try to take that data so that they can go after each one of their vendors from an information perspective, and many legal teams are sort of looking at storing and safely storing that data, is something that they don’t want to be in the business of anymore. So they’ve already collected it, but they’re worried about the risk that they have there. When you’re talking about managing payment preference, that gets really tough because that’s another thing that feeds into the manual processes, and this is one of the top forms of fraud from a growth perspective, is that a vendor appears to reach out to you and sort of says, hey, I’ve got a change in how I want to get paid, they’ll sometimes even say, “Hey, we had fraud, and we need to change our account. The process to reach out to that vendor, that brick and mortar, to call them and really verify that that request is real is super manual. It takes a ton of time, and it’s also ripe for internal fraud. Your AP agents, they know exactly what they need to do to log a phone call, and that sort of thing, and if someone’s trying to make it look like they made that call without actually making that call, it’s actually pretty simple to do, so you know, many clients are sort of saying, man, I wish I could get out of that. Entirely, and not have to deal with those manual processes, and really the risk that comes along with you and your business keeping track of, you know, how they’re getting paid.

Craig Jeffery  10:11

You know, the three things that we’re talking about. I want to comment for those who like looking at data and seeing, you know, are there trends, is there something that follows what we expect is it reversed, etc. So this first one is a size reversal from small to large. What I mean by that is, if you look at the smallest companies, 42% identify that as a pain point, those are under 50 million. If you look at the largest, it is 10% and then as you move to the middle size, it’s, uh, you know, around 20 22% for mid market, so we go from 42% and it, it becomes less of an issue the larger you go, so that’s a size reversal. So I’ll mention something about that too. This, so the second one is fraud impacts every, every type of organization, any every size organization, and over half, or 56% of all responses show this to be a significant pain point. I know that’s not news. I suspect I suspect everyone has a different level of how much of a pain that is, but this research provided some additional calibration of who is feeling the pain the most. I’d like you to talk us through the details, and I’ll just mention, as people listen to this, that there’s size correspondence, so as we look at what’s going on, the larger you are, the greater the pain of fraud, the smaller the less, so the correspondence is the question there, Steve.

Steve Gaida  11:41

There’s a quote that says the things that hurt the most teach the most lasting lesson, and those larger businesses, because of their large volume of payments that have gone out, they’ve experienced a lot of loss and pain that goes along with that, so they’ve put protocols and procedures in place, which take resources and time and money to protect them. They’re doing the work to make sure that those things happen. Then also, I think there’s a difference from an actual loss perspective, because if you’re a large corporate that has millions and millions and millions, millions of deposits in the bank, you’re likely to probably feel less of that loss than a smaller business. The pain of that fraud loss, for those businesses that are a little bit more on the smaller end of the spectrum, they actually feel it more because they’re going to be left holding the bag to a higher extent. Fraud is one of those things that it takes a lot of effort and energy to keep your team in front of it. The schemes and the strategies that fraudsters use is always changing and evolving. Think of it almost like a cold war, where you know the fraudsters learn more, and you catch up, and then they learn more, and you catch up. It’s an unending battle. And the other thing, from a paradigm perspective, is that that’s all they’re focused on. Where you, as a business, this is a small part of it. You know, your business might be building, you know, custom homes or something like that, that’s really your focus, and you’re fighting fraud on the side. My advice there is, ask yourself an honest question: Is fraud and info security really your core competency? If it’s not, this might be something that you consider outsourcing and working with, you know, a partner that has more experience and more technology to kind of eliminate some of those manual processes that go along with fighting fraud.

Craig Jeffery  13:49

Thanks, Steve. You know, the third area here I wanted to talk through, just for a moment, there’s some, there’s some correlation between mid market and large corporations here on changing payment instructions, so adding or changing vendor payment information. If you look at the mid market, the 50 million to a billion in revenue, that’s 51% Identify that as a pain point, significant pain point, 63% of large. They’re fairly close. As you get to the really small organizations, it drops off significantly, so this has always been inefficient, and criminals have certainly been exploiting the changing payment process, and you touched on some of that, you know, from a fraud perspective, but maybe as we expand, can you talk about what are we learning, and what do you recommend organizations do here with this, this idea of other changes.

Steve Gaida  14:43

Yeah, for sure. So, so one of the things that we’re seeing is, and, and have seen for, you know, five years now, is that the fraud, the fraudsters on the other side of it are getting better at using technology, so they’re able to cast a wider net. I was talking to a couple. Customer, two or three months ago, and one of the stories that they shared with me is they said they got an email from someone saying, you know, ABC Company, we’re changing our payment instructions, we had fraud on our account, you know, came across, they knew as part of their protocol they needed to call to confirm and really tie that request to the brick and mortar, but along with that, they got a voicemail, sort of saying, “Hey, I talked to my boss, who talked to William. They just basically googled the CFO and sort of said, and he said that we needed to call to confirm this change as well. So we all know that that AP rep shouldn’t have let that one go. They shouldn’t have taken the voicemail, however, you know, with a huge stack of manual processes in front of them, the fraudsters know that if they put that out there enough times, someone’s going to be busy enough where they’re going to say, you know what, this is good enough, I got a call, it’s really a numbers game where they do this over and over and over again, they’re going to find that AP rep that’s going to say, you know, this is good enough. The story lines up, that type of a thing. Some businesses are sort of taking the approach that the manual validation of the account change is a manual process that’s right for error, and they’re looking to get that out of their business. There’s fintechs that you can use to help with this, where they have more technological solutions, where you can prevent that more from an account level, so if there was a change and they were trying to put the funds into a different account and it didn’t actually belong to ABC Company, they can electronically stop that and prevent that. So, some are kind of looking at that process, and they’re sort of saying this is tough. The fraudsters are getting better. The fraudsters are using better technology, instead of kind of getting caught in that fraud cold war. Is there a better way to outsource?

Craig Jeffery  16:57

Yeah, excellent. Well, we’re part way through our the podcast, and we haven’t done the formal introductions. Love to hear about who is Steve Gaida, and a little bit about Deluxe. Maybe you could just give us the 52nd run down on what’s your role at Deluxe, and introduce Deluxe to people who may not know.

Steve Gaida  17:16

Sure, so I’ve been here at Deluxe for about 25 years, worked in the payments division, and I’ve spent a lot of my time working on how do you get payments out of the mail. One thing that I think is very unique about what we do is usually with digital payments you need to reach out to the person that you’re making the payment to and collect the data. Deluxe has a different spin on that, where we can pay someone digitally without collecting any data, so that’s something that I’ve been focused on. How do you make payments? How do you make digital payments without needing to collect data for about the last 15 years or so? Managed a customer support team, was a part of product, led sales teams, variety of different roles. So, Deluxe is 110 year old company. We created the paper check, but as things have evolved over the years, we help businesses with other types of payments as well. So, here at Deluxe, whether you’re making payments or you’re receiving payments, we’re really here to help businesses succeed.

Craig Jeffery  18:24

Let’s shift over to automation and efficiency. So many people see that these, these two things are both sides of the same coin, and this certainly to be more efficient, more automated means getting things out of the mail, as I’ve heard you say. You know, so what are what are some of the key impediments to reducing manual processes in order to automate them?

Steve Gaida  18:47

One of the almost non-starters is if your digital payment solution requires you to reach out to all of your vendors and collect payment data that you then have to validate, that’s oftentimes a non-starter. That’s something that really stands in the way of you getting going on the project, you know. Integrated receivables have been, has been around for decades, and big clients are looking to get payments out of the mail, but the question really, when you get down to it, why do you still have so many checks going through the mail, along with the remittance, is really their vendor, the person that’s on the other side of it, that’s unwilling to share the data in order to make that payment digitally. So I see that as one of the biggest barriers is how do you digitize a payment without getting the person on the other side to share data. There’s a saying in info security that you are as safe as the least safe person that you share your data with. So, sometimes you’re working with customers that Steve’s landscaping might do a great job in your yard, but if it comes to sharing payment data with them, you might get nervous about that and sort of say. He does a great job with landscaping for all of our buildings and that sort of thing, but maybe I don’t want to share my routing and account number with him. We see those types of issues come up over and over again, where it’s like I have different payment options, but how do I get people to select them? How do you get people to select them in a way where they feel good about it, where it doesn’t feel like you’re twisting their arm behind their back and really forcing them to take a payment method that they don’t want to take is another thing as well.

Craig Jeffery  20:30

Yeah, so you’re saying the landscapers, the weakest link in the IT chain, I get it. No, but I mean the way you were describing is like it’s like there is a weak link, and so every part, every link has to be strong. That’s a really good, really good example, you know. Sending payment, the value, and the remittance information, or the data around that, sending that together makes sense. Why is this such a challenge? And why are mid-market companies feeling a higher level of pain than either small organizations or their largest peers. Right, so this is an area. This is very interesting to us, because the pain point is spiked compared to smaller and larger mid-sized companies are feeling more pain. So, if you could, if you could help explain that and talk us through it.

Steve Gaida  21:19

Yeah, my theory, and in my experience, is that the smaller businesses are probably less complex from a payment offering. So many smaller businesses that we talk to, they’ll send less than 10% of their payments via ach, and they’re feeling pretty good about where they’re at. So I think that’s one of the reasons why the smaller end don’t struggle with it as much is just because they’re not sending as many electronic payments. As you start to get into the mid market space, things are more competitive. You have to give your vendors different payment options, and that’s really where the details come in. One of the things that I hear come up over and over again is timing. Believe it or not, we still talk to people that are physically mailing something, they’re physically mailing that ach to come along with the remittance, and getting those things to time up is important, because if I get a deposit put into my account, but I don’t have the remittance along with it to sort of explain, this much is for invoice one, this much is for invoice two, this is the discount I took on invoice three. If you don’t have those things together and there’s that disconnection of data, what happens next? Your vendor’s calling you, and that’s one of the death by 1000 cuts for your AP team, is they’re answering those types of questions, and it interrupts what they’re doing, and just really cuts into their productivity. So that’s one of the reasons why I feel like the small side of it are sort of saying it’s not a problem, because they’re not really truly in that space. The large customers kind of speaks for themselves, type of a thing, but that’s why I think the mid market is particularly challenged in this space. They need to push out multiple payment types, and connecting those two to make sure that the payment and the data, the remittance arrives at the same time, is just critically important. If you don’t have it, you’re going to get one of those phone calls.

Craig Jeffery  23:21

Yeah, excellent, Steve. I think everything you said was right. That’s a good hypothesis. It makes sense. It fits, and I think for those who like survey data, and you see changes, you know, it’s like it’s interesting to see if the larger you get, the more complex it is, or the larger you get, the more easy something is, or when you see these peaks or valleys, you know, in the middle, those, those certainly lend themselves even more analysis. Yeah, so the, you said death by 1000 cuts, this is death by 1000 calls, you know, another pain point was the phone. This came up a lot, calls and contacts from suppliers, this was another mid-market situation where they feel the most pain situation right there. They’re peaked at this. How big of an issue is this? And how I know Deluxe helps doing that, but how are companies going about reducing the noise or the pain of these calls, these many calls?

Steve Gaida  24:19

One of the ways that we handle this is we do this through true payee choice. We don’t force the vendor to pick a payment type that doesn’t work well for them. We truly leave it up to that vendor. There’s some solutions which might force a vendor to take a payment type that they’re not a huge fan of. An example would be a V card, you know, if I’m paying you $100,000 invoice, and I’m saying, “Hey, Craig, take this V card, you’re like, “Hey, thanks for the business, Steve, but I would like my full $100,000 I don’t want to share, you know, two to 3% of that and lose that in merchant processing fees. So really truly providing payee choices, I think one of the differences with us, we’re really ubiquitous in terms of we don’t have any skin in the game to sort of say the payments got to go down a certain rail, we believe that when you’re building a payments product there has to be things in it for the payers to make their life easier and there also has to be things that are in it for the payees, so we allow the payee to pick the choice that works best for them, whether that’s free ach, free paper check, or a free e check that they can get today. That’s really what makes us unique in the sense that how do you deal with people that don’t want to share any information, but want to get paid quickly and deliver the remittance at the same time. That’s where I really think that we’re unique in this space.

Craig Jeffery  25:50

Yeah, Steve. Thank you. As we move to final thoughts, one thing I’ll just mention, for those that are listening, I’ll repeat it: you can get the report by looking in the show notes, or you can go to Strategictreasure.com/surveys, forward slash so S U R V E Y S is where you can get that. Steve, any last thoughts?

Steve Gaida  26:15

Yes, yes, final thoughts would be don’t be intimidated by the fight for resources from an IT perspective, there’s fabulous companies that are out there that are kind of giving businesses the ability to kind of front to back full payment automation, that’s the dream, that’s where everyone wants to go, but unfortunately that comes with a bigger price tag, and you’ll need it resources to pull that off. If you can swing for the fence, and you can hit that home run, great job. However, if you’ve can’t, and you’ve gone up against that budget wall a couple of times, take a bite of the apple instead of trying to swallow the whole thing. Really look at the part of the process that’s the worst for you, and look for providers that can help with that piece, because you’re solving just a subset of the overall payments automation piece. You’ll find that the price tag is lower, and you’ll also find that the reliance on IT resources gets much, much less. Lots of vendors are out there that are kind of working in a plug and play type of situation, where you don’t even need those IT resources. Don’t give up hope, you can do it.

Announcer  27:36

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