Digital Payments Are a Matter of When, Not If, CFOs say
Almost universally, CFOs reporting on the state of their companies' cash management have pointed to investments in digital payments solutions as among the biggest changes in the past year. The fact that payments are changing — largely driven by the growth of mobile payment applications and the evolution of electronic payment systems — is not a revelation, but what most CFOs are seeing has them thinking now is the time to make big decisions about how they will proceed.
Summary1. The Inevitable Shift to Digital Payments: Why CFOs are Prioritizing Investment in Them2. Meeting Financial Operations Changing Needs: Why Companies are Shifting Technology Investments3. How CFOs and AP Teams can Ensure Smooth Transitions to Digital Payments
The Inevitable Shift to Digital Payments: Why CFOs are Prioritizing Investment in Them
94% of companies are investing in digital technologies in at least one area of payments and finance, with 87% planning to invest in the future, with a strong preference for fraud prevention and risk management, November report from PYMNTS and Corcentric shows.
A trend due to the pandemic, where digitized risk management systems’ importance came to the fore. Successive confinements, remote work and the increase in cyberattacks considerably strengthened the need for fraud prevention and risk management. On July 2020, the City of London Police reported that since January 2020 more than £11 million have been lost due to COVID-19 scams.
In response, companies are fighting back: 55% of companies surveyed by PYMNTS are currently investing in fraud prevention and risk management solutions, and 30% are planning to do so. Key findings from the report include:
- 83% of CFOs say that digitized platforms helped improve their companies’ fraud prevention and risk management functions.
- 44% of companies have abandoned the investments in digital working capital and credit solutions they made to continue operating during the pandemic.
- 84% of CFOs believe the global economy will fall into a recession in the next six months, as their outlook has been clouded by high inflation, rising interest rates and volatility in the capital markets.
The predominant reason for this shift is increased customer demand for digital payments. According to CFOs, this is especially true among younger customers who have grown up using technology and expect seamless experiences across all platforms, including new ways of payment. Some industries, like hospitality, have already seen shifts toward mobile apps that allow consumers to pay without handing over credit card information or cash.
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Meeting Financial Operations Changing Needs: Why Companies are Shifting Technology Investments
Clearly, corporate executives are hyperaware of the shift that's happening in payments and are taking steps to prepare their companies for it.
As the effects of the pandemic have eased, many businesses have begun to determine which applications are most important and which can be abandoned. It turns out that procurement has been a key area for investments, PYMNTS’ data also shows:
- 38% of CFOs say they are investing in their procurement functions (sourcing, compliance, contracting, negociating, monitoring supplier performances, etc.)
- 47% plan to do so.
In light of these results, it's not hard to see why more and more finance teams are making investments in areas like procurement and accounts payable. Accounts payable is usually considered one of the high-risk items in the financial statements. The reason is that it is an area where internal controls are most likely to be weak and where fraud can be committed with relative ease.
From demand to payment, the Procure-to-Pay cycle is a tricky one. To quote Modern Treasury's study on new digital payment methods "The State of Payment Operations", 88% of decision makers reported facing problems with their payments system. 69% of financial leaders agree that managing payments takes too long from start to finish and 52% said that payments take longer to post than their purported timelines.
Manual, time-consuming and unsupervised payment processes are anachronistic. They're inefficient and they're vulnerable to error. Compared to using a digital payment method like mobile payments or electronic invoicing, manual methods seem not just outdated but downright primitive and costly.
What's more, these manual systems are rather risky when you consider how important cash flow is to the success of most companies. And then there's the fact that with manual payments, employees don't always use company funds in the way they should be used. This opens up the doors to fraud and theft from within—a problem which can be even more prevalent with cash transactions than it is with checks or wire.
How CFOs and AP Teams can Ensure Smooth Transitions to Digital Payments
Transitioning to digital payment processing doesn't have to be a daunting, time-consuming task. Today's technology makes it easy for businesses to upgrade their payment acceptance options without sacrificing efficiency or adding extra labor costs.
As executives at the helm of finance organizations, CFOs and AP teams have the opportunity to facilitate a smooth transition away from paper checks to digital payments. Perhaps unsurprisingly, the top two strategies are creating a culture of innovation within their organizations and improving technology infrastructure.
However, some challenges exist around accounting for these transactions in a timely manner, especially if they come from unfamiliar sources. This is a major reason why the use of digital payments has not yet become widespread.
While most companies are still in the early stages of preparing for digital payments, some have already made the switch. And others are waiting for certain conditions to be met before they make the leap.
The most important thing is to start planning now. Here are some tips on you can ensure smooth transitions to digital payments:
Have a clear vision of where you want to go with your digital payments strategy
Know what you're trying to achieve by adopting new payment methods and choosing which ones fit your business needs best. Will you be using mobile wallets or other non-card forms of payment? Do you want to pay your vendors and suppliers ? Are you looking at options such as bulk payment or optical character recognition? Are you fully aware of digital payment advantages and disadvantages? Understanding what you want from your new system will help you plan accordingly.
Research your options and find out which payment methods are right for your business model
CFOs should look at their current business processes and identify areas where digitization could be beneficial. These may include invoicing, purchasing or payroll processing. Payment methods are typically categorized by:
- Mobile wallets (e.g., Apple Pay, Samsung Pay)
- Credit cards (e.g., Visa, Mastercard)
- Cashless payments (e.g., PayPal)
For many businesses, this means shifting away from cash-based transactions and toward a more streamlined payment system. But the process isn't always easy.
You should also consider whether or not it makes sense financially for your business model when implementing new technologies such as digital wallets or blockchain technology.
partner with IT leaders early in the process when developing new processes or systems
The most common concern among CFOs and AP teams is the lack of regulation surrounding digital transactions. The lack of transparency around security and privacy is also a major concern for many organizations. In addition to compliance with regulations, business owners should also consider risk management when it comes to digital payments. These include fraud prevention and mitigation measures as well as security protocols like encryption and tokenization.
CFOs and AP teams need to partner with IT leaders to ensure that they have the necessary infrastructure in place to support digital payment acceptance. This partnership will also give them an opportunity to share ideas on how they can leverage technology improvements as part of their overall digital transformation strategy.
Spread the word: create a culture of innovation where everyone is involved
Innovation is not just about launching new products or services; it’s also about rethinking how you do things today so that you can be more agile and flexible in the future. The best way to achieve this is by creating an environment where employees feel empowered to make suggestions on how things can be done better, faster and cheaper. This will enable your company to be more responsive when it comes time to adapt to new technologies and changing customer demands.
Remove the bottlenecks in your accounts payable processes
Identify where manual tasks have become bottlenecks in your workflow — whether it's waiting for approval signatures on purchase orders or inputting data into multiple systems — and streamline those steps by automating them as much as possible.
Focus on automating repetitive tasks and eliminating manual steps wherever possible. This includes invoice scanning, data entry, matching invoices against purchase orders, matching invoices against customer records and so on. This will free up people from mundane but necessary tasks so they can focus on higher-value activities.
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