Select Language

Search

Insights

No match found

Services

No match found

Industries

No match found

People

No match found

Insights

No match found

Services

No match found

People

No match found

Industries

No match found

NextGen Treasury: Your Digital Roadmap

Treasury Services COVID-19 Insights February 09, 2021
Treasury Services COVID-19 Insights February 09, 2021

 

Digitizing payments has become more important than ever as organizations look to increase working capital, create efficiencies, potentially reduce costs and minimize risk. Furthermore, the COVID-19 pandemic has pushed many businesses to adopt automation as a way to address these concerns across the broad community of suppliers, customers and partners.

According to a 2020 survey by the Association of Financial Professionals (AFP), nearly 60% of respondents said their organization was very likely or somewhat likely to convert the majority of their B2B payments to suppliers from checks to electronic payments. Only 5% indicated they have no plans to convert.1 

3 Steps to Successfully Transition to Digital Payments

3 Steps to Successfully Transition to Digital Payments

Step 1. Set Your Goals

Your goals may include:

  • Increasing working capital
  • Creating infrastructure efficiencies
  • Maximizing financial gains
  • Minimizing risk

How can you set your goals?

  1. Analyze your current accounts payable spend.
  2. Determine your current working capital need.
  3. Identify your days payable outstanding (DPO) and days sales outstanding (DSO).
  4. Identify the Industry standards in delivering efficiency in AP and AR departments.

Step 2. Set Your Plan

Your digital payment infrastructure has to serve your organization's purposes, not the other way around. And the use of checks needs to move away.

Disbursements and receivables decreased in organzation's surveyed from 70 to 80 percent in 2004 to 40 to 50 percent in 2019, according to an AFP 2020 survey.

  • Check remains a primary form of payment
  • AR vs. AP - Similar reductions in use reported
  • Size does matter
  • Major suppliers continue to be paid via checks
  • Supplier adoption of ePayments is on the rise

The number of ACH debit transfers (16.6 billion) exceeded the number of check payments (14.5 billion) in 2018 for the first time1

Converting B2B payments to suppliers from checks to digital payments is accelerating, according to an AFP 2020 survey2.

  • Roughly 60 percent reported that their organization is either very likely or somewhat likely to convert the majority of B2B payments to suppliers from checks to electronic payments
  • Organizations are currently primarily using electronic payments for their B2B transactions
  • Supplier adoption of ePayments is on the rise

Step 3. Overcome Roadblocks

When working with your suppliers and clients on transitioning to digital payments, it's best to communicate the benefits, such as timelier payments for vendors or cashless transactions for customers, straight-through processing to AP or AR:

  • Cost savings
  • Improved cash forecasting
  • Speed of settlement
  • Improved supplier/customer relations

According to an AFP 2020 survey, other benefits to sending digital payments include2:

  • Straight-through processing to AP or AR, and general ledger 49%
  • Cost savings 45%
  • Improved cash forecasting 42%
  • Speed of settlement 42%
  • Improved supplier/customer relations 37%

According to an AFP 2020 survey, other benefits to receiving digital payments include2:

  • Speed of settlement 50%
  • Straight-through processing to AP or AR, and general ledger 31%
  • Improved cash forecasting 30%
  • Improved matching for cash application 27%
  • Improved supplier/customer relations 26%

As companies have had to transition during the pandemic, with many working remotely, electronic payment methods are more convenient and allowed for payments to be made and received with minimal disruptions.

1 "The 2019 Federal Reserve Payments Study," The Federal Reserve System, January 06, 2020 2 "AFP 2020 SURVEY," Association For Financial Professionals, 2020

But what does that journey to implementing a digital payments infrastructure for corporates look like? Susan Witteveen, who heads the Treasury & Payment Solutions group at BMO Canadian Commercial Bank, recently moderated a discussion with three experts to discuss best practices:

  • Robert Lowther, Senior Vice President of Finance at MNP, one of Canada’s largest accounting, tax and business consulting firms

  • Megan Kells, Head of North American Treasury and Payment Solutions, Product at BMO

  • Matthew Bleecker, Director of Payments Optimization Strategy at BMO

Following is a summary of our conversation, edited for length and clarity.

MNP’s Digital Evolution

According to Lowther, MNP began its transition to digital payments about four years ago. At the time, the company took a more traditional approach to payables and receivables, with checks representing the primary payment method. Not only did MNP’s treasury team want a more efficient system, its customers were beginning to express interest in alternative payment methods, making the transition what Lowther called “an exercise in trying to make sure that our vendors’ and clients’ voices were heard.”

Lowther noted that MNP prides itself on its entrepreneurial spirit and dedication to innovation, and it saw upgrading its payment system as an opportunity to apply those principles to satisfy both internal and external stakeholders. Getting MNP’s treasury team to buy-into the plan was a critical factor to its success, but the task was made easier by the fact that the initiative was driven by the team itself.

“It started from some of the ideas that they brought forward,” Lowther said. “They've been the driver of the changes. It not only helps the business, but it helps them in their day-to-day work. The business reasons for these changes are what drove the decision-making process.”

That’s not to say there weren’t a few obstacles along the way. While some of MNP’s clients and vendors were eager to use electronic payment methods, others weren’t so sure. That’s where communicating the benefits of digital payments from a vendor’s perspective—such as timelier payments—can help make the case.

“Convincing some of our other vendors and clients to move on to the different forms of electronic payments was a challenge,” Lowther said. “The way we overcame some of those conversations was just talking through some of the benefits that they were going to see.”

When it came time to choose a solution, MNP understood that a digital payment infrastructure had to serve its purposes, not the other way around. That included making sure the tools easily integrated with its enterprise resource planning, or ERP, and banking systems.

Of course, having the right tools in place is only meaningful if you have a way to measure success. To that end, MNP established clearly defined goals for its external clients and vendors. “We set initial targets to convert a certain percentage from checks to a variety of different electronic payments, and that goal was based on a percentage of clients and a percentage of vendors,” Lowther said. “Our goal was to see incremental improvements over the course of a period of time. We started three or four years ago, and we've seen those incremental improvements happen each year.”

An Ongoing Journey

What’s notable about MNP’s implementation was how closely it adhered to best practices for adopting digital payments. As Kells pointed out, setting clearly defined goals and milestones in the process was critical, as was the time MNP gave both the treasury team and its customers to transition to increase their overall percentage of digital payments within the company. It’s a classic example of how following best practices can lead you to the right tools for your organization.

“The more that your bank partners can understand what those goals are, they can talk about helping you from a tactical perspective of achieving those goals,” Bleecker said.

Lowther said MNP has transitioned to a nearly full digital treasury function, but that’s only the first step in what is an ongoing evolution. Moving forward, Lowther expects a next-generation treasury system to allow the team to focus on the more strategic aspects of the job.

“I think we still have some work to do,” he said. “Our real focus has been on the transactional piece—how do we eliminate a lot of the transactional elements and allow our systems and tools to manage those for us? Where we continue to look for ways to improve is on the longer-term planning pieces of our cash flows. How do we continue to automate our cash flows? How do we integrate it with some of our budgeting and forecasting tools? There's a number of strategic projects that we can focus on to better manage the long-term capital of our business.”

Along with providing more flexibility for its external stakeholders, the transition to digital payments has been well received by MNP’s treasury team. Lowther cited the speed and efficiency of their new system, as well as providing the ability to focus on more client relationships.

“It impacts the finance team, but it also impacts the decision makers that are approving transactions,” Lowther said. “It also impacts our regional teams that are trying to deal with clients. The less time that they're spending on administration is more time that they're spending with clients. It really allows our team to focus and move from transactional work to strategic priorities and allows our team to grow with the technology. It allows them to be more involved in trying to drive decisions.”

Speeding Toward the Future

At BMO we’ve seen firsthand the reluctance of some suppliers to make the transition to digital payments. As Bleecker noted, his customers are increasingly making the change because the benefits are more easily attainable, including improved cash forecasting, speed of settlement and stronger customer relations.

“They’re used to getting that check in the mail, and the bottom of the check stub had all their invoice information,” Bleecker said. “That’s what was primarily driving that hesitation to change: Will I receive the data that is so critical to close my AR items that are open for that invoice? The data and the dollars need to travel together. The other piece that has happened is we made it simpler for suppliers to be able to be registered to get a digital form of payment. And by removing that friction we've seen a higher adoption and we'll continue to see that adoption rate increase over time.”

And just as the pandemic accelerated the adoption of new technologies across business types, it’s done the same for the transition to next-generation treasury systems. “While COVID has been obviously awful for the economy and small- and medium-sized businesses in general, it has really pushed everyone forward five years to transition to an electronic environment,” Lowther said. “That's what we've seen in our business as well.”

As Kells put it, “Digital payments don't discriminate. Regardless of the size of company you have, the geographic footprint or the type of industry you're in, there's a role for digital payments in your payment mix. With a very receptive community overall to sending and receiving electronic forms of payment, now is the time to move your company forward in that direction.”

 

1 Association of Financial Professionals

Read more

[VIDEO 1 TRANSCRIPT] What are some practical considerations for reaching your digitization goals?

Robert Lowther:

Maybe just to set the stage, obviously, if you go back five years treasury, as a function, it was being disrupted. There was plenty of new technology coming into the market. This just isn't for professional services. This is really across all industries. As a firm, we've been growing quite quickly over that period of time. The way we first looked at it from an evaluation perspective was, how do we offset some of these higher transaction volumes?

There's throwing more people at the problem, and then there's looking for tools and technology that can help us manage that challenge. What we did is our team was reviewing what tools and technology made sense for us. Part of the conversation of when we went to BMO was what does BMO actually have available? What new tools are they rolling out? MNP, as I've mentioned, we pride ourselves on innovation. We want to be an early adopter in some of these technologies. That's how we approached the conversation with BMO around the treasury piece.

For the people on this call, part of the evaluation is dependent on what type of business you're in. It's going to be dependent on what resources you have available. A large business is going to have different levels of resources than a small business. Finding the right solution is obviously going to be critical in evaluating what the right setup is. From a leadership perspective, we looked at a couple of different things. I've mentioned supporting the client. That's both internal and external. Then as a finance team in general, accuracy is going to be critical. That's really step one, accuracy, you don't compromise on.

Excellence is something that we talk about as a finance team as well and coming and doing our best work every day, finding new ways to approach problems, and raising issues when you see them. The innovation of our financial processes, again, tying in to some of the specifics I'll go into later on in this conversation. Getting buy-in from the team, it really wasn't a challenge at all. When I think about what our team brought forward, this is really an initiative that was driven by our team and it started from some of the ideas that they brought forward. They've been the driver of the changes. It not only helps the business, but it helps them in their day-to-day work and really the business reasons for these changes is what drove the decision-making process.

[VIDEO 2 TRANSCRIPT] What are some obstacles you should prepare for? 

Robert Lowther:

We would have a segment of our vendors and clients that are 100% on board with moving to electronic payments or would have already been using them, but convincing some of our other vendors and clients to move to different forms of electronic payment was also a challenge.

I think the way we overcame some of those conversations was just talking through some of the benefits that they were going to see. When we think of our vendors, for example, on the electronic payment side, the payment comes through in a more timely manner. You're not waiting around for that check to be delivered in the mail and going to stand in a bank line and deposit those checks. On the client side, obviously, we have more flexibility in that conversation, but we had a lot of successes there too. The clients definitely bought in to the move to the electronic payments.

A few of the other items, I would say just making sure that these new tools integrated with our existing platform whether it's our ERP system or our banking system. We wanted tools that were easy to integrate and that we weren't having to create workarounds in that respect. Then the last piece was training. Our finance team is used to the existing platforms that we have.

Our finance team was relatively easy to train because they're in these tools every day. Where I would say there was a larger challenge in that respect was the people that are only in the system maybe once a month, mainly the approvers that go in and they're trying to assess what the transaction is, what's been process, maybe look at the backup to that transaction and going in and approving it. I would say that the training was a little bit of a hurdle to overcome as well, but after a few months, it was dealt with.

[VIDEO 3 TRANSCRIPT] What’s on MNP’s digital roadmap?

Robert Lowther:

What I can say is, when I think about the entire treasury ecosystem and our finance where it lies within our finance ecosystem, we’ve transitioned to what I would say is a nearly full digital treasury function. I think we still have some work to do. Our real focus has been on the transactional piece. How do we eliminate a lot of that transactional elements and allow our systems and tools to manage those for us? Where we continue to look for ways to improve is really on the longer-term planning pieces of our cash flows.

Some of the other pieces on the receivable side, again, our technology and finance team have worked together with BMO as well, setting up scripts for some of the client deposits that we see, aligning those with our in-house management system. What that means essentially is that when a deposit comes in, the script reads off of a document, and then it would assess if there’s a matching receivable. If there’s a matching receivable, it matches it off and if there isn’t, then it would go into the bank or into the pool for our team to review.

In most cases, those deposits would automatically be matched off with receivables, again, eliminating, maybe it’s 90% of the work associated with that.

I think we’ll always have work to do because technology changes so quickly. We’re really focused on some of the strategic items. How do we continue to automate our cash flows?

How do we integrate it with some of our budgeting and planning tools or forecasting tools? I think there’s a number of strategic projects that we can focus on here to better manage the long-term capital of our business. That’s where I think really where our focus is now that some of the transactional elements have been dealt with.

[VIDEO 4 TRANSCRIPT] How have the changes MNP has implemented impacted their employee experience?

Robert Lowther:

Some of the benefits that I think the team, as a whole, would have seen would be just the speed and efficiency. I've talked a bit about that in a number of instances already, really less manual processes, I think most people appreciate that. The cost savings obviously is a piece of it as well. Really, I talked about Spin Dynamics and the benefits of using that in A2Pay. It's a smart tool, it saves our team time of reentering the same categories or cost information, setting up those rules, simplifying approvals, making our approvers more efficient.

It impacts the finance team, but it also impacts the decision-makers that are approving transactions. It also impacts our regional teams that are trying to deal with clients. The less time that they're spending on administration is more time that they're spending with clients. That's obviously a side benefit of some of this. Not the complete elimination of checks because we still do have some of that, but just the time and material savings having moved most of our transactions off of checks.

You think about the time of processing the check and stuffing the envelope or sending it out, or if you're using a third-party service to do that for you, there's a cost associated with that. Eliminating a lot of that cost is beneficial. Just in the team in general, what I would say is it really allows our team to focus and move from the transactional work to strategic priorities and allows our team to grow with the technology. Allows them to be more involved in trying to drive decisions rather than managing more of the transactional and administrative elements of the business. Like I said, that the team has really been great and led the charge from step one. I think that's part of the good story.

[VIDEO 5 TRANSCRIPT] How do you start digitizing payments?

Matthew Bleecker:

I think goals is a number one thing as normalization to think about and making sure you're studying those. When we think about a couple of those, the number one that I've had since COVID came into play is that increase in working capital. I've heard from a lot of clients talk about that. How do I do that? How can I extend my DPO and what can I do? One of the things that I suggest clients take a look at is what is your payment strategy?

Is this an opportunity to refine that? Or if you don't have a payment strategy currently in place, to develop one. It's one of the key things you'd want to probably take a look at. Other things, Megan, that you might have heard from a goal's perspective?

Megan Kells:

On the slide there, you can see creating infrastructure efficiencies or just creating efficiencies overall. I think Rob highlighted some really good examples today of what he saw on his efficiencies across his organization. I would say digital payments, they don't discriminate. Regardless of the size of company you have, the geographic footprint, the type of industry you are in, there's a role for digital payments or electronic payments in your payment mix. To Rob's point, they didn't continue to totally eliminate cheques.

There's always going to be room for cheques but thinking about how it's part of your mix is important. On the efficiency, I would say you can now look for efficiencies in typical three categories. People, process, and technology. People, we heard today that you can move people from lower-value activities where they're spending time opening envelopes, reconciling checks to hire, order work. In Rob's case, working capital and focusing on cash flow. From a process perspective, when you move to electronic payments, when you're initiating them let's say on your bank's platforms and the most case will be a lot of the steps and the controls are built right into the system.

Those process steps can come out of your manual work because the system prompts you to do those steps in your process. From a technology perspective, electronic payments have a lot of the remittance information that travels with them. That, again, takes a step out of your manual process and creates some efficiencies. Then Rob-

Matthew Bleecker:

I think as we listened to Rob, the other thing he talked about was a cost and recognizing that there's a cost associated with doing manual payments. Oftentimes, those have higher fees associated with them. Along with the labor cost, when you think about that ties back to the efficiency. Can you gain efficiencies and gain that cost savings by having your resources deployed and doing something else? Wires are a very expensive form of payment. If you can remove that and offer a virtual card or an EFT or ACH, those are much lower from a cost perspective.

Depending on the size of your company and you take a look at the number of transactions you are doing on an annual basis, those fees eventually do add up. That's an opportunity to save some of those cost. Along with those different digitized payments, come risks. Megan, what are you seeing as far as some of those payment risks that are out there and changing those, and how do you make sure that you have good controls in place?

Megan Kells:

Yes, Matt, it's a really good question. Oe thing just on the hills of some of the things that Rob mentioned is, part of the risk is understanding where your payment is in the process. When we think about paper payment, some of the risk is understanding the timing. If we just think about things like dependencies on the post office, that is something that's not controllable for any of us. Taking some of that risk out of the predictability of when the payment will go out or when the payment will arrive, I think is key.

Moving to digital or electronic payments, when you are using that format you can mirror the controls for those payment types with the controls you've set up in your own company. Now you just mentioned wire payments. When you move towards something like wire payments, you can set up dual controls, you can set up multiple levels of controls on top of your Maker Checker in the system. You can set up different authority level controls by payment types. You mentioned ACA, EFT.

Digital payments enables you a little bit more flexibility in terms of system-driven controls that marry up to your finance or your treasury controls that you have in your group. It gives you more power and more control on overall reducing the risk in the system.

COVID's really forced us to take a look at that and find ways for us to be more efficient and timely with our payments. At the same time, making sure that we are keeping our staff safe. I think that's a key thing overall. We have a safety concern in regards to our employees and our team members. Rob also mentioned a little bit of he falls into that bucket of one third. They've already been on this journey for a couple of years, however, that journey doesn't end just because you started switching your payments over to digital.

Matthew Bleecker:

Absolutely. I would agree. I think weaving in that, that payment strategy as part of your goals and taking a look at that, and then making sure you share those goals with your banking partners. The more that your bank partners can understand what those goals are, they can talk about helping you from the tactical perspective of achieving those goals, similar to what Rob had talked about when he was sharing his story. Sue, it's back to you, but thank you for allowing us to share some of our best practices and things that we've seen over the time period.

[VIDEO 6 TRANSCRIPT] How can you get suppliers onboard? 

Matthew Bleecker:

Oh, definitely. I think when it comes to that supplier acceptance, when we first started talking about digital payments to suppliers, they were a little bit reluctant and that’s because change is scary. They’re used to getting that check in the mail and at the bottom of the checks tab, had all their invoice information. I think that was primarily what was driving that hesitation to change was will I receive the data that is so critical to close my AR items that are open and for that invoice?

I think Megan talked about that a little bit earlier, the data and the dollars need to travel together. The other piece that has happened is we’ve made it simpler for suppliers to be able to be registered to get a digital form of payment. By removing that, that friction, we’ve seen a higher adoption and we’ll continue to see that adoption rates increase over time.

[VIDEO 7 TRANSCRIPT] How can you transition your customers?

Megan Kells:

I think spending some time to really analyze your payments both incoming and outgoing is also super important. The by-product type, the volume of payments, the value of some of your payments, some frequent offenders in terms of customers who are suppliers or vendors who more frequently issue checks.

If you have some timing concerns, if you have big payments you make at typical intervals during your month, that's really critical to understand. Then you've got really a history and an inventory of what your payment schema looks like. Then you can work with your advisor to figure out what the next step would be. With your goals firmly set up and then much like Rob did understand your time horizon. If you have technology that you can take advantage of whether that's a treasury workstation, an ERP system, whether you're making a change or moving to one, or you're on Excel spreadsheets, that's totally fine too.

How you would back into moving some of your mix to digital. You can move it in increments, once you have a better understanding in the analysis of your payments. You can also think of small or large things you can do to incent your community in terms of moving to digital payments. If people pay on time, can you factor off part of the cost of those payments, et cetera? That would really depend on the mix of payments and the volume and the value, but there's all sorts of alternatives you can do if you find components of your payment mix, where that audience is not as receptive.

Those would be the five or six principles to think about as you start to move down your journey to move to electronic and digital payments.

Marc-Andre Bergeron Managing Director & Head, Global Corporate Transaction Banking

PART 1

North American Investment Strategy: 2021 Market Outlook

Brian Belski February 04, 2021

  While 2020 has been a challenging year, it’s also highlighted our resilience and determination. Those qualities were evident in the...


PART 2

COVID-19: The Biden Presidency and What Lies Ahead

Brian Belski, Michael Gregory, CFA, Margaret Kerins, CFA January 26, 2021

  With Joe Biden sworn in as the 46th U.S. president, and on the day Canada marked the one-year anniversary of its first confirmed COVID-19...


PART 4

Deep Dive into Debt - How Retail Borrowed to Health through COVID

Simeon Siegel, CFA April 06, 2021

  More retailers are borrowing under COVID than during the Global Financial Crisis Retailers have borrowed multiples higher t...


PART 5

The ‘E’, ‘S’ and ‘G’ in Mining

Magali Gable April 21, 2021

  At our 30th Annual Global Metals & Mining Conference this year, producer after producer engaged on the subject of sustainable mining ...


PART 6

The Changing Landscape of U.S. Trading

Joe Wald May 21, 2021

  Changes to rule 606(b), the transparency and the NMS market data rule will increase data transparency and level the playing field f...


PART 7

COVID-19: Biden's First 100 Days: Tracking the Road to Recovery

Dan Barclay June 14, 2021

  With President Joe Biden cresting the first 100 days of his administration, experts are forecasting a strong economic rebound in the Unit...


PART 8

IN Tune: Food and Ag Takeaways From the Farm to Market Conference

Joel Jackson, P.Eng., CFA, Kelly Bania, Kenneth B. Zaslow, CFA July 02, 2021

  IN Tune is a podcast featuring Equity Research analysts from BMO Capital Markets. Our episodes explore key emerging themes, tre...


PART 9

Extraordinary New Drivers Mean U.S. M&A has Room to Run

Lyle Wilpon July 26, 2021

That we’re living through one of the most robust M&A markets in living memory will not come as news to anyone. That markets are firing ...


PART 10

Accelerating the Road to Recovery

Dan Barclay August 16, 2021

  What kind of headwinds can we expect and what are the risks? Will inflation woes drive a change in monetary policy? BMO Capital Marke...


PART 11

The Delta Surge and Impacts on a Reopening

David Casper, Brian Belski, Margaret Kerins, CFA October 27, 2021

  On September 28, BMO hosted a panel to provide an update on the current state of the pandemic and an outlook on what it means for the mar...


PART 12

The Best of Both Worlds: The Future of Work in Capital Markets

Dan Barclay, Aine O’Flynn October 07, 2021

  It’s not that long ago that the physical pitch book was entrenched in deal-making lore, for decades thumped down on boardroom table...




You might also be interested in