Kevin Kane:
Welcome to another First Business Bank Podcast. I'm Kevin Kane, and I'll be your host for today's episode on integrated payables. This is the second in an ongoing series we'll be producing throughout 2022 on a variety of treasury management topics. Our first podcast was a general overview titled, What is Treasury Management? And so today we're going to focus on a specific solution known as integrated payables. In basic terms, you can think of integrated payables as a form of automation for your treasury function. To help us explore this topic further I have with me today, Kim Preston and Marlee Jorgensen. Would each of you take a moment to introduce yourself to our listeners?
Kim Preston:
Hello, I'm Kim Preston, senior vice president and director of treasury management at First Business Bank.
Marlee Jorgensen:
Hi, I'm Marlee Jorgensen and I'm a treasury management officer at First Business Bank as well.
Kevin Kane:
Thank you, Kim. Thank you, Marlee. Let's get our conversation going. I'll start with a question for you, Kim. What is integrated payables?
Kim Preston:
Sure. To put it in probably basic terms, it's the ability for a business client, from their accounting software, to create a single payment file, which includes all modalities from check, ACH, wire or in many cases, adding virtual payment to that as well. And the ability to combine all of those payment modalities into one single online portal.
Kevin Kane:
Okay. Got it. And if we think of benefits, taking what you just described, what are the benefits for a business to implement this type of a solution versus more traditional ways of moving money out of the company to other places?
Kim Preston:
So I'll comment on four different options, one streamlining the payment process. Again, as I said, it puts all those payment modalities into one final payment file. So it's not a case where you issue a check file and you have to do an ACH file and wires outside of that. So there's efficiencies gained from that standpoint. There's reduced costs because again, if you're eliminating checks, the mailing cost, envelopes, things of that nature, reduced costs in labor because of the streamlining. Security, there's some definite fraud mitigation improvements using the single payment process file, as well as revenue generation opportunity with the virtual cards, you have the ability to earn revenue on payments that you're making.
Kevin Kane:
Okay. Got it. Marlee. How about from your point of view, maybe just to build off of some of the things that Kim described, are there thoughts that you may have about how you measure the ROI, the return on that effort, to put in place in integrated payables solution? Is that something you have any insight into?
Marlee Jorgensen:
Yeah. Working with a couple clients on the ROI piece, it's really interesting and very attractive to them just seeing those numbers at play where certain card payments would be transferred over into a revenue stream. And then also, a factor in that, as Kim mentioned, would be the time and the cost of a check. I found it really interesting. A client had mentioned their analysis that they did internally on the cost of a check, because industry standard is around $5, but they estimated it to be closer to $8 just based on everyone who touched it there, the lack of efficiency in their terms, on the cost of that postage, time, envelopes, all those things that a lot of clients are used to with paying via check. So then, you can enter those numbers and calculate, okay, they estimated around $8 to put that in and see the difference that integrated payables can really make with that virtual card piece. So not only is there that revenue stream, there's also that cost that they're not having to incur anymore on those check payments.
Kevin Kane:
I think I'm with you. So on that if we're talking about, I'll just do some round numbers, if I have 100 checks a month and that entire end to end process, you described Marlee, $8 to issue a check, et cetera, et cetera. So that's $800 in cost. Sounds like what you're describing is moving away from checks as one scenario. And instead of issuing checks or cutting checks, you're actually making those payments then with a virtual card in the example that you just shared.
Marlee Jorgensen:
Yes, exactly. In some cases.
Kevin Kane:
Okay. And does it have to be an all or nothing? What I mean, I guess is you could go from an environment where again, you're substituting a virtual card, so payments on a card instead of issuing checks, is there something in between? So it's maybe not all or nothing, but you move some of your payments to the card solution in that scenario, but not all.
Marlee Jorgensen:
Yes, exactly. Some still go via check. But the cost is still reduced since it's in that one payment file that those still get dispersed via check. But the cost is lower to the client just because they're not the ones touching it and doing all the additional resources. So there's a cost to that. But the ones that can go virtually with the virtual card, those ones go that way and those payments, I should say, go that way.
Kim Preston:
So I'll piggyback a couple of comments on that as well. So part of it could be there's different conversations we can have with the client around what's the best option. Maybe a client that's currently doing all check for payments, maybe initially some of it's starting and I'm not with ACH. And then A, we will help them uncover those vendors that they're paying that do accept virtual card, because not all vendors do accept credit card, there's a component to that.
Kim Preston:
So it could be just maybe it's starting out like the base level eliminating the check cost because that's the biggest cost in the payment side of the equation for clients is the check side. Even going to ACH, they're going to have reduced cost converting check payments to ACH. And then maybe the next tranche is some check could go to virtual, maybe some ACH could go to virtual. So it's a moving target. To your point, Kevin, it's not all or nothing at once, but that's part of our role to help them determine what's the best option for them too, to be the most efficient, the most secure and get the best ROI for them, with the investment of the product.
Kevin Kane:
So Kim, to build off of some of the things Marlee described, when we're talking about integrated payables, big picture, it starts out with that description. The discovery process, if I'm tracking with this, really begins with the conversation where you describe the concept and maybe some of the benefits, but then you really dig into an individual client's distribution of payment types. So could be all check is one extreme, or it could be a blend of lots of checks, maybe some ACH, some wires and perhaps some card disbursements. But really trying to understand, okay, what are you doing today and what might be possible in terms of changing the mix between those different payment types? Is that the initial step in the effort?
Kim Preston:
Yes, because every client is not going to be the same. So we use a benchmark of average of 200 payments a month, perhaps that a client is making and then back into it from there. And then as you talked about, so it could be a client using all checks. So maybe the first step would be converting to ACH or converting some to virtual. Because again, not every vendor accepts credit cards. So it could be we have to start with ACH. The goal is each level we get to, check, wire, to ACH, to virtual, is more efficient for the client. There's some better security controls in place.
Kim Preston:
And obviously, the virtual card, which the end game is we'd love to get clients more payments going to that virtual piece because that's where the revenue is for the client, as well as from a secure standpoint. It's a single use card, so it's a one time payment. So from a chance from fraud and it's just more efficient all the way around. But again, it's a building block. It's not all or nothing from the start. So that's where we come into play to understand what their processes are and how we can help improve upon them.
Kevin Kane:
So Marlee, Kim was describing revenue share and some of our listeners may not be familiar with what that means in the context of cards spend or a virtual card. Can you give us a high level description around what that represents?
Marlee Jorgensen:
Yeah. So it's nice when we do a vendor match. We run the analysis based on current vendors that the client is paying and then you can really see what percentage would go to virtual card and you would earn a basis point percentage based on that spend. So every dollar spent via card, you would get to earn a rebate on. And depending on how much, it can change versus large ticket items or how much that you are spending. So it's nice that they're able to earn that based on those payments.
Kevin Kane:
Okay. So what I'm hearing is an easy way to think about it's a little bit like the commercial equivalent of reward points or rebates that a consumer might get when they're using their credit card to buy groceries or whatever the case might be.
Marlee Jorgensen:
Yes, that's exactly right. So you can just almost pretend that a virtual card is basically that plastic that you're paying with at a vendor that when you're buying something, but in this case it's more secure because it's just a single virtual card, if you will. And once it's used, then it's done and you get a new card the next time, if you're going to pay another vendor.
Kevin Kane:
Okay, terrific. So let's shift gears a little bit. We talked about some of the basic parameters around that discovery process. We talked about the fact that there is an ROI on integrated payables that relates to shifting from one payment type to another, where there are different efficiencies to be gained more automation to the process within an accounting function at a company. Can we talk a little bit about how long has integrated payables been out there? Is it newer? Has it been around for a while? Talk a little bit about that either one of you.
Kim Preston:
It's been around for years. I would say though, probably in the last few years, it's become just more, I guess, relevant. A lot of the large institutions have had it for some time. But with advances in technology and the product, as well as more and more banks having an interest in, again, helping clients find efficiencies and more revenue share and security and whatnot, there's more interest. So I think that's probably why you're hearing about it more because there's just more banks getting involved with it.
Kevin Kane:
Okay. And that does make me think about, is there a certain... So more and more banks are offering it, it's becoming more relevant for all the reasons, Kim, you touched on. How about from the company's point of view? Is there a certain size of a company that is a good candidate for integrated payables? Do you have to reach a certain threshold in terms of sales revenue at a company before it makes sense or not?
Marlee Jorgensen:
Ideally, you think a larger client. But it hasn't always turned out that way, especially when we've had certain businesses that said we're going in right now to the office, just to cut checks, or we are having issues with the person who signs checks available to do that. So it really just depends. And then we had another one that said we can implement this process and it actually helps cover a full-time position that we just haven't been able to fill. So that's been really intriguing for certain clients that initially I thought, oh, they're probably not as interested in the service. Typically, we'd say at least 150 to 200 payments a month. But revenue size, I don't really think there's a good number to put on it. I don't know, what do you think Kim?
Kim Preston:
No, I would say any client. Again, it comes down to what the client's desire is. Is it to improve efficiencies? Is that they're interested in the revenue piece? Any type of client, maybe a client that's only cash intensive, obviously that maybe doesn't fit in that wheelhouse. But any client that's issuing checks or ACH or wires would be a candidate for this project.
Kevin Kane:
Okay. Terrific. And I think again, like many of the more technical solutions that are out there, A, it's been around for a while, so it's proven. This isn't some emerging solution that has not been tested. And in many cases, when new approaches are introduced to the market, it does typically start out at the larger end in terms of size and complexity of customers or companies. But it's evident based on what the two of you have just touched on that even a fairly modest level of payments on a monthly basis are worthy of consideration to shift to this type of a solution.
Kevin Kane:
So when we talk about a little bit, maybe in terms of what's required within a company's accounting function or treasury environment that would support this. So what I'm really asking about, I think is this a plug and play solution, different ERP systems that maybe work best? Are there any specific requirements that listeners should be aware of in order to move forward with integrated payables within their company?
Marlee Jorgensen:
Good question, Kevin. And yes, you do want to be careful of that. A big topic, at least for a lot of clients that I'm talking with, is their ERP systems. I've had so many that have looked at new ones and made the change. I don't know if COVID sparked that and they realized they need to update a little bit, or they're not happy with what they're currently using. So then one main item that you really want to have for integrated payables to make it the most cost effective and the most efficient, which is what we're trying to do with automation is to be able to generate one payment file with the multiple payments within there.
Marlee Jorgensen:
So you want the check, ACH, wire and then vCard, all in one file to be able to, in some cases, process straight through to the bank. So that can be tricky. I know I have a client right now who's making a change. And they came to us and said, "Would there be one that you'd recommend that works well with integrated payables?" So I would encourage anyone who is making a change in the next year or two or on the roadmap to definitely ask the question and see where that leads them when they're evaluating.
Kevin Kane:
Okay.
Kim Preston:
To piggyback a little bit on that too, though, there is the ability, I would say through some customization. There's hundreds of ERP systems that work with the product. So again, to Marlee's point, it just some may be a little bit more archaic and if they're at the point of upgrading, that's something to look at. Another thing we did uncover through this, we have a large client and they're in multiple markets. So they have a couple of different banks. But they have the ability we can pull files from external banks into this product into one file as well. So again, with technology, we've got the ability to do some customization, to make some of those things work too.
Kevin Kane:
Okay, terrific. And I'm thinking about a middle market company. Some of those resources could be in house, IT people. It could be their accounting firm or whoever they partnered with in terms of an ERP system, probably in addition to their banker can offer insights in how to evaluate their ability to generate or produce the type of file Kim and Marlee, that you've been describing and whether there are any enhancements or modules within their ERP system that would help facilitate the implementation or adoption, I'll use that word, of an integrated payable solution. Does that make sense?
Kim Preston:
Yes.
Kevin Kane:
Okay.
Marlee Jorgensen:
Yes.
Kevin Kane:
And we've been talking, this is kind of a Swiss army knife in terms of lots of different payment types. Are there any payment types that will not work for this integrated payable solution?
Marlee Jorgensen:
Well, the first one that comes to mind for me is we've just heard a little bit about it lately is digital currency with Bitcoin. That's not available, at least not as of now. So that's the first one that comes to mind just because we all keep hearing bits and pieces about the digital currency world.
Kim Preston:
Yeah. That's the only one I would say at this point too.
Kevin Kane:
Other than I think Kim, you talked about cash. And so presumably-
Kim Preston:
Yeah.
Kevin Kane:
Stating the obvious perhaps, but okay.
Marlee Jorgensen:
It's funny, you bring up cash and then digital currency, which could not be further from each other.
Kevin Kane:
That's a good point. Either the stuff that's very far advanced, to your point Marlee, or the stuff that's really, really old school. So those extremes won't work, but everything in between will, is what I'm hearing. Let's go back to virtual cards for a moment. I think we've already touched on this, but it's worth revisiting. What are the advantages of using virtual cards within the integrated payables framework?
Kim Preston:
I can start out. One, the revenue. Obviously, that's the first and foremost. You're making a payment and you're making money by making a payment, so that's unheard of. The efficiency from that standpoint. Security, because it's a single card use payment and it's more efficient. The one caveat with the virtual card piece, you have to have the integrated payables product to use vCard. So you can't adjust vCard standalone on its own. The other caveat is, again, your vendor has to be a merchant to accept credit cards. So that could be probably the barrier at some point. Now, again, in the world we're in now, more and more businesses are going to merchant and using credit cards. That's becoming more commonplace than it was years ago. So that's probably the biggest barrier.
Kevin Kane:
Okay. And thanks for raising that again. I'd like to spend a little bit of time on that theme or topic, which is anything my suppliers or vendors need to do to prepare or accept virtual card payments or any of the payment types that we've been talking about. And I know there's a term that describes particularly again, in the context of virtual cards. How do you determine whether a vendor or a supplier can accept virtual payments?
Marlee Jorgensen:
Yeah, there's a couple ways. So when a vendor match is run with a client's payables file, some of them are already enrolled in that network, if you will. So they're already on the list with Visa, MasterCard that they are able to accept. So then it's an easy match. You know that they're going to accept it. Ones that aren't already enrolled in that, they have the opportunity to do so with, it's a campaign that where they can reach out to their vendors and see if they are able and willing to accept that type of payment.
Kevin Kane:
Okay. Got it. So just because Marlee, to your point, if they're not on this list that Visa or MasterCard would have that says, okay, we know for a fact, this company accepts card even if they're not on that type of a registry or list, you can still explore that possibility with them and convey here's why it may be advantageous for them to accept a virtual card payment from a company.
Marlee Jorgensen:
Yes. And from what I've heard, it's a very easy process as well for them. They make it so it's not cumbersome and that they're able to go in and click and accept. But one thing, along with that is that, so just because they're not enrolled now, doesn't mean that they're not willing to accept it. Kim mentioned the world we're living in and payments being received via mail. Some clients are looking at, they really want to get paid quicker, some vendors I should say. So they know that it's advantageous for them to get paid via virtual card, because they know they'll get paid quicker, on time, more efficient. So for them it's cash flow.
Kevin Kane:
Okay. Got it. It's almost feeling to me like this could be the beginning of yet another podcast, which would be to focus maybe even more narrowly on virtual cards and some of the things that we've touched on in our time together so far around supplier enablement and evaluating that payment type and what the advantages are in terms of accepting a virtual card payment. So let's keep that in mind. Beyond that, what else have either of you heard from clients or prospects about things to keep in mind when moving forward or considering integrated payables?
Kim Preston:
Probably the biggest thing is the file, the file import from the ERP system. That's probably where we would start because that's the biggest component for the whole process to work is in order to create that single file with all those modules in it. So I'd say that's probably the first and foremost where we would start, and that's my opinion anyway. Marlee?
Marlee Jorgensen:
Yeah. I just think there's a lot of excitement around it. I know this has been a struggle for some businesses to really manage all these different types of payments and they've already tried on their end to move some over and it seemed like a difficult task where this is a dedicated process that to get it all, pull it all in together and try to convert these and have them going certain channels that they want or that they don't have to worry about it as much because they can stop writing checks on their end since this process would do it for you.
Kim Preston:
And one more comment on that. I'd add that Marlee mentioned earlier, when she talked about the vendor match, so that's something that we will do for the client. So it's not work that the client's going to have to do. They'll provide us a list of the vendors that they're paying and then we do the work behind the scenes to do that vendor match. So it's a win-win for the client. They're not having to do that work.
Kevin Kane:
Thank you Kim, for bringing that forward as well because I do think that's a really critical part of the execution of this. I can imagine that a lot of folks who are listening to this podcast are going to say, "You know what, you've got my attention." And let's really start to talk about practically, how do we get this going and how much, and it seems pretty complex. So how can I figure all this out? And what both of you are touching on here is this is where, whether it's First Business Bank or another financial institution, but hopefully First Business Bank, here's how we can help you navigate these different elements and make it happen and inform and educate you and take on a lot of that work here with us, our team. And that's huge because in the meantime, I can appreciate that a controller or a treasurer at a company, the accounting team, they've got a number of things that they need to pay attention to just day to day.
Kevin Kane:
But we can really help out by taking on A, helping them evaluate the potential. And then B, laying out a project plan or a work plan that will say, okay, here are the things that the treasury management team at First Business Bank, as an example, can take on to get this up and running. So I think that's a very, very important aspect of how to start down this path and make it happen. Anything else that we haven't talked through this afternoon, Marlee from your point of view or Kim, from your point of view that a company should be thinking about or considering, or needing to understand before taking the next step?
Marlee Jorgensen:
Well, I wanted to mention just talking about that, like Kim said, we do the work on our end and it's actually really cool once you get that analysis back. There's a lot of detail in there and we help walk through it. It's a lot of good information to see that payables file that is provided from our clients. But again, we do the analysis and it's all laid out for them. So it's almost a fun process I'll say for the client to see, and even for us to see as well of those. And again, you can plug and play in there and also see what percentages, oh, these ones are already guaranteed, can go over to virtual card, this ACH, and then these would still potentially remain as check. So I think that might sound nerdy, but it's really cool to see it. I think clients are really interested in it and they see a lot of value. And again, all it takes is for them to pull their current vendor list of who they're paying and go from there.
Kim Preston:
Yeah. A little investment in time. A little investment in time is all we're asking.
Kevin Kane:
Yeah. And it's like a puzzle, Marlee. I like the way you described it and your enthusiasm for it. And it's this idea that it doesn't have to be. I think that's something else that I believe is true is that it doesn't have to be an all or nothing thing. You can begin this process, do that, get that AP file, for example, look at who they're working with today. Start to understand the current distribution of payments among those various types, and then understand, okay, if we shifted and maybe it begins if virtual card feels a little too daunting to start with, there's still that opportunity to migrate from check to ACH, and you're already part of the way there. So I think it starts off again with that discovery process and then some recommendations, and then we're here to help the execution of that process. But it doesn't have to be 100% from day one moving from the way they're doing it today to a full blown, integrated payable solution. Anything else? Any other words of wisdom from the two of you on the solution, the approach, et cetera?
Kim Preston:
No, it's fun having a new tool in the toolbox in the treasury team. So again, we'd love to chat with anyone that just has an interest in learning more about it.
Kevin Kane:
Sounds good. I was at a conference recently and one of the things we were talking about is that challenges in the workforce, finding talent, labor challenges, shortages, there's a lot of conversation today on that front. And oftentimes, it's in the context of automation on the shop floor or the factory floor. But what I like about what we've talked through today and what each of you have shared is that this really is automation in the office area, or the treasury function. And there are many gains to be had with proper support and advice from your bank to move in that direction. So I think it's a very timely topic as well.
Kevin Kane:
So with that, I'd like to thank Marlee and Kim for participating in our conversation, sharing their insights and their experiences and expertise. And I'd like to thank our audience for listening today as well. And in future episodes, we'll go into more detail about additional treasury management solutions that can be used in your business to optimize working capital, management, generate revenues, we've talked about today, protect against fraud, just become more efficient overall. And potentially, by offering customers of companies that we serve more ways to pay, that could actually also attract new clients to businesses that we serve. So that's another topic that I think we can explore down the road here. And finally, be sure to visit us at firstbusiness.bank, to check out other resources we offer to businesses, business owners, and leaders to help them succeed and achieve the goals that they have. And we invite you to experience the advantage with First Business Bank. Thank you.