Ivalua Payments Part I: Why ERP Payments are Broken

by Steve Carter

There is a storm coming in the accounts payable (AP) world. The tides of suppliers and payments are changing and in order to withstand the tidal waves of change and influx of AP transactions, organizations will need to find agility within their operations. Unfortunately, traditional payment approaches treat invoices to payments as a process silo, locked within the fragmented ERP which cannot support the change. Organizations relying on this old-school silo approach to accounts payables to support the gig worker and flexible payments will be like a sandcastle against what is sure to be a wave of transactions. The AP team will be quickly swamped and washed away.

The Need for Change in Payment Processes

One outcome of the Covid crisis has been the realization that paying suppliers is important. The  lack of end-to-end flow results in a gap around payments, resulting in increased levels of inquiries and breaks the supply chain as suppliers put deliveries on hold. Not only does paying the supplier early (with or without a discount) improve their liquidity and support their financial well-being, but it also secures a vital link in your supply chain. And with remote work and collaboration on the rise like never before, organizations are looking to secure the best price and guarantee delivery through a more flexible financial approach. This approach calls for change and will be an approach that is no longer linked to the final settlement on invoice, but spreads the payment across the purchase lifecycle, from contract to acceptance. 

Like the tide going out before a tsunami, the big wave of social and dynamic supply is about to hit, which will bring with it an acceleration of the gig economy. Employees will become suppliers, reducing employment costs on one hand, and creating working flexibility on the other (more on this topic in Part III of this series). However, for the Accounts Payable team, invoice volumes will increase, inquiries will escalate, and payment costs will go through the roof. By their nature, gig workers are tech-savvy, looking for real-time payments and payment transparency from contract through payment. 

Payment Challenges

When looking at the digital transformation of payments, the challenges facing any company–but especially the largest business–are all due to the silo-based approach to payments. The first of these is the fragmented and duplicative approval of invoices and payments. The disconnect between invoicing and payment results in additional duplication checks and manual intervention in the flow. In part, it is addressed by upstream digital procurement initiatives which should mean an approved Purchase Order removes the need to approve the Invoice, but the payment is still approved, once, if not twice. Furthermore, the link to the invoice is lost as they turn into accounts to be credited, then consolidated into an end of month check run, which is once more approved. 

This check process exposes the second big challenge created by the payment silo: the lack of vendor payment and banking details in most North American ERPs. These details are missing because you do not need them to cut a check. To compound this, the ERP master data is fragmented. It is not linked to the sourcing, contracting, or purchasing systems, where suppliers can be invited to enter them as part of an award or order. 

Furthermore, the e-Invoicing Networks, like Ariba, Basware or others have a Supplier Portal not linked to the payment’s module in the ERP, and not trusted by the payables team due to the risk of fraud and ‘bad’ data. As a result, the solution has been seen as the payment card, which requires the vendor to pay for the privilege of getting paid, something our Gig workers are just not going to do. So like the check, the customer will have to cover the payment cost and burden.

Finally, the negative impact of the ERP payments can be damaging to the procure to pay process as a whole, as burning more back and forth cycles dilutes efficiency and opens the door to fraud as payment files can be discreetly intercepted and accessed outside the core process. Poor payment processes with ERP structures break supplier trust, increase overhead and cause more issues than an interconnected payment system.

Building a Levee for Payments

A levee is a wall that blocks water from going where you don’t want it to go. Levees may be used to increase available land or to direct and divert a body of water, controlling the flow and harnessing it to be more useful and efficient . 

The levee or solution to the shortcomings of the ERP system is to focus on the whole source-to-pay journey with interconnected payments. Organizations need to enable the digital gig suppliers to go self-service within a digital framework, to process electronically and to pay electronically. At the same time this creates the commercial flexibility needed to secure the best prices and commodities. However, this must be done in a robust and secure environment. 

The process silos must go in order to form the transaction into one digital journey. The benefits for both the organization and the supply chain become impactful and dynamic, while the opportunity for prompt payment discounts is vast. Ultimately, payback in terms of gaining the best workers will outweigh the cashflow benefits of paying suppliers a few days late. Electronic Payments are no longer about cutting the cost of the transaction, but in streamlining the whole Invoice to Pay or Source to Pay process.

Looking for your own levee? Ivalua Payments can create a secure and seamless journey for your Procure-to-Pay processes. In Part II of this blog series on payments, we will unpack how your business can leverage payment processes to become the customer of choice. Stay tuned!