The rise of Open Banking in supplier payments

Procure-to-pay is an undeniably complex process. From purchase requisition to the payment of an invoice, procurement requires the input of stakeholders across an organisation and a number of consecutive steps that must be followed. The complexity of this process can allow for inefficiencies to arise at every stage, creating a situation in which sluggish progress and late payments are the norm.

The UK Government’s Payment Practices Reporting from 2023 shows that among the UK’s five largest retailers, ¼ of invoices take over 61 days to be paid – with late payments risking penalties, or distruption of services.

There is huge potential in Accounts Payable for improvement and optimisation, with every step of the process harbouring inefficiencies that can be tackled using new technologies. The final stage of this process, payment, is no exception. While the traditional paper-based system of posting cheques is largely (although not entirely) a thing of the past, there is still much more that can be done to streamline supplier payments. In this article we will be explore the benefits of integrated open banking for invoice payments and how this weighs up against more traditional methods.

Traditional Bank Transfers

Bank transfers have long been at the centre of B2B payments, offering companies with a low-cost digital method of paying invoices. The process typically involves logging into your company’s bank portal to manually input a supplier’s payment and account details, or generate and upload a BACS file from your AP or accounting system. The risks of manually inputting bank details are obvious: it is both time-consuming and error prone. Although BACs files reduce the serious risk of incorrect entry of bank details, the process is still from efficient.

Open Banking

Launched in 2018, Open Banking has paved the way for a more interconnected financial ecosystem, allowing banks and financial institutions to share their data with regulated payment providers through APIs. Platforms like Kloo have brought open banking to the AP process by integrating this payment method within the AP workflow. Eliminating the need to open banking portals in separate windows, when it’s time to settle an account, a simple selection from a dropdown menu initiates the in-platform payment. All the supplier’s details are automatically extracted and pre-populated by OCR, removing the risk of manual errors.

The Benefits of Open Banking in AP

• Streamlined Payment Process: Open banking eliminates the need to manually input supplier bank details or navigate through traditional banking portals. By integrating directly with AP systems, it facilitates a smoother, quicker payment process directly within the platform.
• Reduced Error Rates: By automating the extraction of bank details from invoices and pre-populating payment information, open banking significantly reduces the risk of errors associated with manual data entry, enhancing the accuracy of transactions.
• Improved Working Capital Allocation: Payments made through Open Banking are not subject to the latency involved in moving funds from a holding account to a separate operational account, reducing the volume of cash required on hand at any point.
• Scheduled Payments: Kloo’s open banking for invoice payments supports scheduled single payments and payment runs, allowing businesses to manage their finances more flexibly and efficiently with future payments scheduled ahead of time.
• Cost Savings: By reducing the reliance on manual processes and improving the efficiency of payment systems, Open Banking can help businesses save on operational costs associated with accounts payable management.

Key Takeaways: Embracing Embedded Payments

Marked by inherent complexity and susceptibility to inefficiencies, the P2P process holds huge potential for companies looking to make time and cost savings in their back-office operations. In particular, the payment delays highlighted by the UK Government’s Payment Practices Report 2023 highlight the need for a more efficient approach to supplier payments. Embedded open banking payments, as showcased by Kloo, represents a significant improvement on traditional methods, offering finance teams a streamlined, error-free payment process, embedded within their AP workflow. This integration of open banking not only simplifies transactions but also brings about tangible benefits such as improved cash flow visibility, reduced error rates, and cost savings.

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