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3 Reasons Why Payables Transformation is Coming to Mid-Market Businesses

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Despite their outward appearances, large and midsize companies face many similar payables challenges. They both maintain complex supplier ecosystems, with thousands of suppliers to onboard, maintain and pay. They both buy commodities, deal with contract manufacturers and manage specialized services such as telecom and print. They both have global supply chains and are exposed to tax, fraud, regulatory and audit risks. The real difference between the two, however, comes from the way different companies address these challenges.

Whereas a large multinational likely has the necessary resources or a shared services organization to manage purchasing and payables complexity, mid-market firms are left to tackle the same problems with fewer people, less budget and older tools. Add to this increasing regulatory hurdles, global expansion and the ever-present need for faster revenue growth and one thing becomes clear: midsize companies need a payables transformation to thrive in the modern economy.

To help procurement and finance professionals understand what’s driving this need, here are three reasons payables transformation is finally coming to the mid-market — and advice for how organizations can effectively face these challenges.

1. They Need to Manage Increasing Payables Complexity 

Anyone working in the supply chain space is keenly aware how quickly it’s changing. In particular, two trends are making the accounts payable processes within it harder to manage: companies are increasingly becoming more externalized and global, and that entire ecosystem is simultaneously going digital.

Today, even a midsized business is likely to have suppliers on the other side of the world. Pressure to keep costs low while continuously developing new products means that maintaining a complex network of global suppliers is now a competitive necessity. Along with that added complexity, however, come a host of challenges.

Consider the regulatory burdens these businesses face. Mandates from the IRS and other bodies to collect and validate needed W-8/VAT/local tax ID data to avoid related penalties, requirements to check against OFAC and SDN to prevent money laundering, and increasing AP fraud have all introduced both risk and tedium into the supplier onboarding process. Procurement may have identified an innovative new supplier, but accounts payable will now need to ensure the correct country-specific regulations and business structures are identified to submit the necessary forms — and keep up with regulations that are constantly in flux.

Rather than allow themselves to be buried in regulatory minutiae, mid-sized organizations will instead look to transform their payables processes through an automated approach. For example, Tipalti, a provider of payables automation solutions, provides a guided tax form wizard that helps suppliers of U.S. businesses choose the correct form based on their country and business structure (e.g., W-9, W-8BEN, W-8EXP, W-4, Form 8233). Tipalti requires all payees to fill out tax forms or provide their VAT/local tax ID as part of self-registration and then validates the form data to comply with FATCA IRS provisions, simplifying the payment process for both suppliers and AP teams.

2. They Need to Keep Costs Low 

Procurement and finance professionals know well the management imperative to control costs. While careful management of expenses and indirect spend can help secure savings, midsize organizations know that these efforts will become futile should the added complexity lead to rapid hiring to support it.

The situation is a double-edged sword. Identifying the right supplier can lead to optimized costs and improved competitive positioning. But taking on too many new relationships, or relationships that require an inordinate amount of effort to maintain, may ultimately strain the business internally. The business must grow, yet it must do so without becoming bloated.

Rather than merely “doing more with less,” AP teams at mid-sized organizations will need to embrace a digital transformation of payables. As Chen Amit, CEO and Co-founder at Tipalti, explains, automating the payables process through an invoice-to-pay platform can help control headcount even while a company scales rapidly.

“We have consistently found that by applying technology to help automate the holistic AP workflow, finance departments are able to reduce workload by 80% or more in some case,” Amit says. “We often also see a substantial reduction in payment error rates (in the 66% range) and a 25% reduction in payment reconciliation cycle times. This all frees finance up to focus on scaling their companies efficiently and driving more strategic initiatives.”

3. They Need Creative Ways to Maintain Growth

Of course, savvy procurement and finance professionals know that payables automation is not just a way to safeguard against impediments to scaling. Executed effectively, a digital payables transformation can actually boost growth, generating additional revenue that can be invested back into the business.

The shift to digital invoicing and payment processes has created this opportunity. As buyers and suppliers increasingly do business through dedicated platforms, the barriers to supply chain financing opportunities have started to fade. More invoice-to-pay solution providers can now facilitate early payment programs, allowing suppliers to access cash through only a few clicks while improving working capital metrics for buyers.

This provides a considerable opportunity for procurement and finance organizations. By transforming the AP process into a potential revenue driver, practitioners can shed their image as a cost center and instead position themselves as strategic advisors. What’s more, these financial and related supplier relationship improvements can be accessed without additional labor requirements, again helping to keep costs low while adding fuel for growth.

Beyond the Hassle 

In addition to the above reasons, a key driver behind the push for payables transformation at mid-sized firms is that procurement and finance professionals simply don’t want to deal with the hassles of payables as they are traditionally managed. Onboarding suppliers, scanning invoices, collecting tax forms and scrutinizing payments for errors is far from rewarding work — both from an organization and a career perspective.

Especially at midsize businesses, finance professionals are both multitalented and driven. They want to show how they can make a strategic impact, and if they can find a way to get the daily grind of invoice-to-pay workflows under control without excessive manual effort, they’re going to do it. And because of this, payables transformation is now firmly taking hold in the mid-market — to everyone’s benefit.

This article was written on behalf of Tipalti by the Spend Matters Brand Studio team and not by the Spend Matters editorial or analyst teams.

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