Payments: the last mile for purchasing software

Purchasing was one of the first business processes to get automated. In the 1960s, manufacturers started using computer systems to better manage inventory and these systems already included basic purchasing functionality.

Purchasing software has come a long way since then. A very sophisticated suite of solutions now exists including analytics, eSourcing, contract management, eRFX, eInvoicing, supplier management, catalogs, marketplaces and procure-to-pay solutions. These solutions come in a wide range of bundles and industry specific solutions.

One process has resisted being bundled in: payments. They are still treated as external: a payment file is generated and shipped off to the bank.
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Sub-optimal payment methods = lost margin

Payments being external to purchasing software leads to a number of problems.

The most important one is that it stops businesses optimizing the use of new payment methods. Payment files shipped to banks get translated into a one-size-fits-all, usually expensive payment method such as wire transfers.

In many cases, better payment methods exist including P-cards, same day ACH and in the future real-time payments, and one day maybe even crypto.

Not using the right payment methods increases payment costs and, in the case of P-cards, means missed rebate opportunities. These can easily add up to 1% - 2% of the gross payment value, particularly for low value payments. That is 1% - 2% margin that would have gone straight to the bottom line.

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Other issues with payments being external to purchasing software

Payments being external to purchasing software also leads to other problems.

Payment files are by nature batch processes which cause delays and include manual steps. Manual processes mean higher costs and an increased risk of errors while slow payments cause friction with suppliers and reduce the scope for working capital optimization such as early payments and supply chain financing. Payment files are also a security risk.

Reconciliation is another issue. Because payments are external, the data coming back to the purchasing system is often hard to reconcile back to the original purchases. This leads to extra process cost and also increases the risk of double paying.

Finally, if payments are external, validating supplier bank details or credit risk are often also external making supplier onboarding time consuming, expensive and insecure.

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Adding payments using embedded banking

These issues have been known for a long time but they were unfortunately hard to solve before. Payments were handled by banks which had their own systems which were impossible to integrate.

This is now changing. Most major banks are starting to offer banking-as-a-service (BaaS) APIs. The number of US banks offering these services is expected to grow sixfold from around 50 in 2022 to over 300 in 2026.

These APIs for the first time make it possible to make payments an integral part of purchasing systems. This is also known as “embedded banking”. Some providers such as Coupa are offering integrated payment solutions in the US and we expect most other procurement and ERP software providers around the world to follow suit.

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About Yordex

Yordex helps purchasing software providers build a competitive and global banking partner network through a single integration. To find out more, please contact us.

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