Mercator Blog

There Is More Technology Flexibility Than Ever Before to Digitize Business Cash Cycle Processes
Date: January 27, 2017
Steve Murphy
Director, Commercial and Enterprise Payments Advisory Service
Among the top priorities in companies across the globe should be to continuously seek process efficiencies, minimize staff resource usage through productivity, and maximize opportunities to improve their financial position. In developed economies this aligns with competitive pressures and economic growth limitations, while in emerging markets the key is organizational control. Digitizing the processes supporting cash cycle conversion and supply chain efficiency is an ongoing opportunity given the available technology and trend toward integrated capabilities.

Developed economies’ general economic growth and performance have been tepid for several years, despite the recent upsurge in financial markets and general expectations for economic activity. In the United States, we can finally start to see some of the predicted uptick in rates as monetary policy adjusts for higher expected growth. As such, corporations of all sizes are turning to electronic invoice (e-invoice) and payment products to realize efficiencies in their accounts receivable and accounts payable processes. Although adoption has increased during the past several years, digital transformation remains less than optimal. Mercator Advisory Group attributes this lag primarily to the effort that historically has been necessary for companies to reengineer invoice and payment processes simultaneously. The effort is even more of a challenge for small and midmarket companies, which often lack the resources to implement enterprise-wide systems and who seek ease of use. This obstacle, however, has not deterred solution providers from developing automation tools for use along the order-to-pay process. More recently we are also starting to see supply chain financing (SCF) solutions being added to the mix.

As Mercator Advisory Group has consistently advised during the past several years, effective working capital management is a key to financial performance and company decision flexibility moving forward. This holds true in both developed economies, where loose monetary policy has helped create easy money, cash hoarding, and reliance on debt, and in developing economies, where high growth can mask control issues that are later uncovered as industries and systems mature.

Industry leaders in both electronic invoice and payment solutions are recognizing that providing a product that more completely addresses automating both sides of the purchase and payment equation can increase customer stickiness. Once an automated payment or invoicing system has been installed at a corporation, it is very hard to unwind it and select another service provider. To the extent that solution providers can sell end-to-end capabilities that require fewer client company resources to launch and support, they may expect to win greater loyalty. In the research report, Digitizing the Business Cash Cycle: Advancements and Partnerships, Mercator Advisory Group reviews the current technology approaches in the business cash cycle, typically called procure-to-pay (sometimes abbreviated P2P, also referred-to as source-to-pay, order-to-pay, source-to-settle). We discuss the reasons companies need to continue along the digital transformation path and point out opportunities for achieving better performance.