What every middle market CFO – and their bank – should know about “integrated payables”

As the digital transformation of B2B payments accelerates, financial institutions and fintechs are partnering to keep the unique needs of middle market companies at the center of a robust 360° integrated payables solution.

In this roundtable, we brought together experts from Heartland Financial USA, Visa Middle Market Business Solutions, Glenbrook Partners and Priority Commercial Payments. They discuss how banks serving the middle market can achieve corporate adoption, supplier acceptance, stronger relationships, and greater revenue opportunity with the right solution for their clients.

“Middle market companies want a fast, flexible, simple-to-implement, easy-to-use IP solution. They need the bank to take the heavy lifting of technology and supplier enrollment off of them.”

Julie Schmitz, Heartland Financial USA, Inc.

What should middle market CFOs – and banks – know about “integrated payables”?

Glenbrook Partners: Addressing the AP and AR needs of middle market companies can be daunting for regional financial institutions (FI’s) and regional banks. The urgency to adopt digital payment strategies has accelerated competition for their client relationships.

But upgrading legacy systems to support a best-in-class user experience and the staffing to deliver white glove account management and supplier enrollment is not realistic for many FI’s. Likewise, middle market companies don’t want to sacrifice their trusted banking relationships or undermine strong supplier partnerships in the process of adopting a solution. But, integrated payables (IP) – done right – solves for all of those challenges.

Visa: With integrated payables (IP) a business sends one payment file to their bank or their bank service provider for processing on any payment type: virtual commercial card, ACH or check payment.

Heartland: From a bank’s perspective, an integrated payables solution merges traditional treasury payment methods of ACH and check with commercial cards and virtual cards, and delivers them to your client in a seamless way.

Priority Commercial Payments: In addition to the benefit of streamlining payments into one single process, companies can really gain a more strategic view of their business relationship with suppliers. The accounts payable (AP) department can become a true analyst and dig deeper around the payment types and which of those payment types may fit for each individual supplier.

What’s the addressable market opportunity for FI’s looking to launch IP in the middle market?

The middle market, businesses with revenue from $50 million to $1 billion, is a key sector of the US economy. With total revenues of over $6.6 trillion, the middle market leads the country’s economy and is growing at a fast pace.

Visa: The market opportunity is compelling – especially if you extend that range to companies down to $10 million in revenue, you are looking at an estimated 200,000 companies with about 64 percent of payments still happening with checks. And now the pandemic has caused a surge in the need – that already existed – for these companies to displace those checks.

It is important to remember that middle market companies sit in the middle of the supply chain, so a buyer is also a supplier.  It’s not just the making of payments that these companies are looking to solve for, they’re looking for acceptance as well. We’re seeing the need to displace paper processes and manual processes from both an AP and accounts receivable (AR) perspective.

COVID-19 has really acted as a catalyst for the industry’s accelerated shift to digital payments in the consumerization of payments. A lot of these companies are operating remote workforces. We’ve heard stories of companies actually trying to relocate their check production facilities to their home garages, for instance, just to meet that demand.

Priority Commercial Payments: This acceleration in moving away from check is happening at every level of the market. We’ve seen industries that did not historically accept card, now making great advancements in shifting to card as a way to be able to pay the suppliers remotely.

We’ve also seen a large increase in the average volume around those suppliers. In the past, larger suppliers were a bit apprehensive to accept virtual card payment, but the average size of suppliers accepting card during the pandemic has grown.

This entire pandemic situation will make an interesting case study once we get a little bit further down the road and can see the true impacts on middle market companies and the evolution of payments.

What functionality are middle market companies looking for?

Heartland: The middle market clients we serve across the Midwest and West may already be getting paid by virtual card, and they want to take advantage of it in their own payment strategy. They’re working with us to advise them on the best way to implement a fully integrated payments suite with flexibility and easy-to-implement functionality. Because they all have stretched resources, especially in AP, they need the bank to take the heavy lifting of technology and supplier enrollment off of them.

Visa: The National Center for the Middle Market reinforces the reality that these companies need solutions that offer “just enough” to fit their needs: not too big and not too small. Middle market companies have lean – or in many cases no – IT staff and very lean finance teams. They need solutions that are straightforward to understand and to implement.  It’s not just the making of payments that these companies are looking to solve for, but they’re looking for acceptance as well. They want AP and AR solutions delivered quickly due to the sudden urgency to displace checks.

Looking at it from the supplier perspective, what do you see on the front lines of digitization on the AR side?

Priority Commercial Payments: With integrated payables, the buyer and the supplier now have the ability to come together in a strong win-win value proposition. Middle market companies may not have enough resources in the AP department to take the time to do the analysis and provide an incentive for the supplier to accept card.  A strong IP platform enables them to more easily create an optimum payment strategy. As a buyer, they can elongate their float, even as they accelerate the payment to their supplier.

The supplier can take advantage of the efficiencies of virtual cards. Plus, it alleviates their concerns about getting paid on time, due to the constraints that the pandemic puts on being able to run checks.  It allows more guarantee of getting paid, and in some cases even to get paid faster than usual. If the solution is truly seamless and integrated, there will be a cascade of alternative payment methods that still deliver value and efficiency to everyone involved, even those who can’t accept card.

What challenges do regional and smaller FI’s face in launching a payables solution?

Heartland: Right now, every bank should include integrated payables as a solution on their digital strategy roadmap.  But constraints on resources and investments to develop and implement new solutions are the primary barrier for regional banks and their network of small community banks. But if you understand your current clients within that middle market space, starting with estimates based on their payables, there is a very strong business case to provide digital payment solutions to clients now, when they need it most.

Another challenge is aligning disparate products and functions within the bank, when you’re looking at traditional treasury payments and commercial card or virtual card payments. There are a lot of things that can come up when you’re implementing a new product that includes key stakeholders within the organization. Each stakeholder group has different resources and interests. To make it successful, you need executive buy-in for the project and the right resources assigned.

Priority Commercial Payments: We agree that there can be organizational challenges to integrate card and treasury payments. But it really is essential for regional institutions and smaller banks to embrace integrated payables. They need to compete on a level with larger banks that are focused on growing their share of the middle market.

From a fintech standpoint, our focus on the ease of technology takes the weight of IT and supplier enrollment off of the banks and their clients. We built our integrated payables platform to be seamless and deliver clear insights about payables so they can make key decisions around what payment types work, where they should be having conversations with suppliers and how they can leverage the amount of volume they do with them on an annual basis.

How can fintech partners help support the customer experience?

Visa: The B2B payments industry was already on the cusp of change, providing financial institutions with tools to move innovative ideas into practical applications. Now, with so many businesses going from wanting to change to having to adapt, they are looking to their financial institutions for guidance on how to make that shift.

And financial institutions are looking to fintechs to partner more closely with them so they can capture the demand and the opportunity. But the solutions need to be easy to implement, easy to use and straightforward.

Priority Commercial Payments: From a fintech standpoint, specializing in the technology is not enough. You have to be a partner with the FI to understand the pain points of their everyday clients. We support the FI to offer a solution for their clients that takes the heavy lifting off their clients.

Having worked inside FIs for nearly 15 years, the most common bottleneck was the technology piece because internal tech capabilities were typically so stretched. As a fintech, we have the opportunity to alleviate that with turnkey technology to deliver a seamless experience. Then, the bank can focus on the strategy around how they want to position their IP solution, how they want to implement it, and then drive it out to their clients.

What are some of the “hard-won” best practices and practical advice that FI’s can follow as they transition to a fully integrated payables solution?

Heartland: Getting IP rolled out is a journey that is well worth it.  Introducing commercial card, virtual card and fully integrated payments to the middle market client can be a little overwhelming. There are a lot of different options and functionalities that can meet their different business pain points.

That’s why partner selection is very important when bringing together different products for your clients into one IP solution. We found a partner in Priority Commercial Payments who built a solution with us that works best for our middle market clients.  We approach it as a stair-step process with the clients. You don’t need an “all-or-nothing” strategy. It’s a journey for your clients, just as it is for an FI to implement it.

We really worked with clients on what they need at that moment and let them know what we have to solve it. We let them know it’s okay to start with just virtual card, or just virtual card and ACH. There is time to re-evaluate and automate more processes in the future.

Priority Commercial Payments: That’s important: everything can be done in phases. It doesn’t have to be done with a “big bang.” With our platform, the options are there to grow into, setting the client up for future success. As they get more comfortable, you’re already set up and built so clients can grow into it.

The key for FI’s is that it deepens your relationship with your clients. It is a positive change with the aspiration that you’re giving them more options in a very streamlined, efficient way so they can roll out more as they are ready.

Any final words of advice or words of wisdom?

Heartland: I recommend implementing IP for your own internal program. That’s how we have implemented new solutions or technology that weren’t legacy vendors. We implement them and roll them out internally, documenting the challenges and processes that clients will encounter when they implement it. That approach allows you to really simplify it for your clients.

Visa: Targeting the right solution to the right market is so important when it comes to B2B technology and middle market companies. Working with partners that know and understand this market from a technology perspective really goes a long way. Solutions need to be integrated into the back-office systems that middle market companies are actually using and syncing up with it instead of requiring them to change their system.

That’s a great example of partnering with the right fintech that appeals to middle market companies.  It is more sophisticated than a small-business solution but doesn’t require so many decision points or process flows that would be applicable to a large market company. The right partners will really know and understand the middle market space and bring the right sized technology to capture that elusive spend that demands shifting to digital.

Priority Commercial Payments: There’s such a shining light on B2B payables right now. Now is the time to really take a step into it and really embrace IP. Do your research and due diligence to see what partners are out there and start the journey. For FI’s this really is the next phase in providing a solution for your customers moving forward. Even if not all of your customers are there yet, it provides them a solution that they can grow into and build that relationship moving forward.

Priority CPX Bank Accelerator program is designed for banks to make AP for middle market customers simpler, more profitable and seamless.

As one of CFO Tech Outlook’s Top 10 AP Solutions, the Priority CPX platform and suite of integrated solutions can be implemented for organizations in a matter of days. Our platform is also white-labeled and built into the leading platforms offered by banks and fintech partners.

Priority CPX is offered by Priority Commercial Payments, the B2B payments segment of Priority Technology Holdings. If you would like to know if your bank or accounting software is white-labeling the CPX solution already, please contact us.