Smarter ways to pay: empowering business with digital payments

It’s the digital era, yet most mid-market companies still use paper checks to make payments. But with a smart fintech strategy, going digital isn’t as hard as it may seem.

By WP BrandStudio

In the back office of a successful manufacturing company, there’s a room filled to the brim with boxes and stacks of invoices. It takes four employees working non-stop for several hours to process all these documents, as each invoice eats up 20 minutes due to reviews, approvals and signatures. The backlog becomes so bad that one of the company’s longtime employees enlists the help of her family on weekends and holidays.

A business that’s so dependent on paper sounds implausible in the digital age, but it’s actually quite common. Many mid-market businesses continue to use paper payments. In fact, a staggering two-thirds of payments by mid-market companies are still made by check.

“There’s a lot of time and energy by staff associated with monitoring those payments,” says Mark Ranta, head of digital banking solutions with ACI Worldwide.

Companies that earn tens of millions in annual revenue process thousands of payments every fiscal year. Handling all those transactions is no small feat. A roomful of paper invoices can result in lost time, productivity and, ultimately, profits. The manufacturing company needed to digitize and streamline its payment system–and fast.

The firm worked hand in hand with KeyBank, which performs due diligence to determine the reliability and trustworthiness of potential fintech solutions, to automate its accounts payable. Some banks purchase a fintech service, like a mobile app or online payment system, and bring it in-house, giving them a financial incentive to recommend it to their mid-market clients. But that approach doesn’t help address a mid-market firm’s actual problems. KeyBank’s strategy is different–instead of in-house fintech solutions, the bank collaborates with multiple fintech partners, ensuring their recommendations are based on their clients’ own needs.

After the manufacturing firm adopted electronic payments, those 20 minutes per invoice shrank to mere seconds. No more scanning, printing and filing the old-fashioned way.

The move to digital payments also freed up time for more strategic work. In fact, the manufacturing company’s finance team was able to redirect its resources to build out a streamlined procurement process for the entire organization. “That function never existed before,” says Matt Miller, head of product and innovation, enterprise commercial payments at KeyBank.

The story of this firm is just one example of how digital payments are becoming a game-changing resource for mid-market companies.

Going digital makes dollars and sense

Innovations in consumer technology and the rise of non-bank financial technology companies are driving the growth in electronic payments, says Brandon Nowac, group head of corporate bank payments at KeyBank. These include non-cash transfers, credit cards, automated clearing house (ACH) payments, wire transfers and mobile wallets.

According to Juniper Research, digital payments reached $3.9 trillion in 2017, a 14% increase from the year before. However, mid-market companies are still lagging behind.

On average, businesses pay between $6 to $8 to issue each paper check, factoring in the direct expenses of stationary, postage and staff time. Electronic payments, on the other hand, cut those costs considerably. ACH payments cost an average of just 10 cents each. Meanwhile, virtual payments through credit cards can even generate additional revenue thanks to rebate programs.

Given this wide range of benefits, why aren’t more mid-market companies embracing electronic payments? It often comes down to inertia. “Adopting new technology is difficult, and you will have folks say, ‘This is how we’ve always done it. Why change?'” Nowac explains.

Getting ahead of the curve

Companies that have transitioned to digital payments are largely driven to do so by the potential savings, according to Miller and Nowac. Depending on the size of the business and the volume of payments, those savings can also translate into earnings.

The upfront investment of staff time and resources required to digitize payment processes is often lower than many businesses assume, particularly if they are already working with a bank or financial institution that knows the space well.

“It’s about a 95% expense reduction in exchange for 10 to 15 hours of personnel time,” Nowac explains.

Electronic payments enable enterprises to make better use of staff time, freeing up employees to perform higher-value work, as was the case with the manufacturing firm highlighted earlier in this piece.

Electronic payments also allow firms to better analyze data. They can provide detailed insights into vendor relationships and engage in forecasting. Finance departments can easily use data visualization tools and manage their working capital. And they can better predict their need for credit. This all sets them up for future success.

“The benefit of digital is that you can look forward,” Ranta says. “With a paper-based model you can only look backward.”

“Maybe it’s not a big deal today, but as more of your competitors start using digital payments, you will be at a competitive disadvantage if you don’t,” adds Joe Resendiz, a research analyst with ValuePenguin.

It’s about progress, not product

When transitioning to digital payments, it’s important to take an agnostic view of each platform. Some payment providers may push their particular product, but that may not suit a business’s needs. Not all vendors accept all types of platforms, which means companies must stay flexible about how they pay them.

“If you run a commercial real estate asset, for example, you’ll have a utility that will likely accept credit cards, but the guy who cuts the grass is probably not going to,” Nowac says. “You need to pay him in some other way.”

When KeyBank works with clients on transitioning to digital payments, the first step is looking at each business’s needs and then finding the products and solutions that help address any pain points.

“The worst thing you can do is have your mind set on one product or one platform,” Nowac warns. For some clients, credit cards might be the right solution. For others, it might be ACH or another type of money transfer service. Still others might need to have the capability to make wire transfers, or some combination of the above.

KeyBank’s unique strategy of collaborating with fintech firms instead of relying on in-house fintech services enables mid-market firms to get a trustworthy and comprehensive solution–whether it’s for payment and treasury management, institutional assets or international trade. This also helps businesses keep pace with the latest fintech innovations while providing a long-term strategy, rather than a short-term fix.

“We need to move away from the payment itself and talk about what really matters to clients before and after,” Miller says.

As digital payments become more commonplace and cost-efficient to implement, mid-market companies have the opportunity to cut costs, achieve operational efficiencies and stay competitive. The days of paper are almost over–and the digital age is brimming with opportunities for mid-market growth. Is your company ready to embrace the change?

Learn more about how Key’s range of capabilities can help middle-market firms thrive.

KeyBank is Member FDIC. All credit products are subject to credit approval. All rebates are subject to rebate addendum. 

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This content is paid for by an advertiser and published by WP BrandStudio. The Washington Post newsroom was not involved in the creation of this content. Learn more about WP BrandStudio.