More than 70% of payments by middle market ($5 million to $500 million) businesses in America pay their invoices by check. MineralTree is trying to change that. BC Krishna, its founder and CEO, wants to move those payments onto electronic rails with commercial virtual credit cards.
He has chosen credit cards as the most convenient form of payment and signed agreements with American Express, Visa and since January, Mastercard. MineralTree’s Invoice-to-Pay solution is pre-integrated with Mastercard In Control, ensuring easy on-boarding and rapid time-to-value for both Mastercard issuers and their clients.
“Credit cards are a very attractive form of payment," said Krishna. "We are all familiar with it, it’s relatively easy to get access, it’s pretty straightforward and you get rewards.”
For businesses, that is likely to be cash back rather than hotel or airline points, he said, and they also get to float their payments for 25 to 30 days — the grace period on their statement.
“The industry has created virtual cards and basically the virtual card is like a credit card but it exists only electronically. The card is generated once and used only once, so the security is very high. I can email you the credit card to process yourself on your merchant terminal.”
Fees at 1.5% to 3% are not insignificant, but cards provide the best electronic payment method, at least until real-time payments and request-to-pay platforms become widely available.
Wires are real-time and expensive with very strict revocation rules, Krishna said. ACH has a lot of security issues, he added, and origination of payments is a problem — most mid-market firms don’t have access to the ACH rails. With the networks from the three major business card players (Discover doesn’t have much of a role in business, he said) cards are becoming a popular way to pay.
AWS only accepts card payments, he said, and the sums aren’t small —MineralTree spends $30,000 to $40,000 monthly on the cloud platform.
Credit cards are a very convenient form of payment. Think of the alternative for Amazon — send out an invoice, collect a payment, and reconcile the payment against the invoice.
“Using credit cards for business payables is something our customers want and need,” Krishna said.
John Wagner, CFO at EverQuote, which is an online insurance marketplace for auto, home and life insurance, uses MineralTree from the time an invoice arrives. The company spend a lot on advertising, so it uses MineralTree as its workflow to get the invoice approved by the person who contracted for the service or supplies.
Suppliers are in the system with their payment preference such as check, card, or ACH. Once approved by the person who ordered the service, the invoice goes to Wagner who can see any information he wants.
“I approve and get a call on my mobile with a security code to show it was me…and the payments go out.” MineralTree handles the rest, from printing a paper check to creating an ACH file or sending a virtual card, and notifies the supplier that a payment has been authorized along with information on what invoice it is for.
A challenge with ACH is its limited information.
“If you send a supplier $35,000 and they had sent me nine invoices and this was to cover just five, not a lot of information that can be transmitted with ACH. With a virtual credit card the message says you have been authorized to charge this amount covering these invoices. MineralTree all communicated back to our NetSuite system.”
For EverQuote, the card charges add up to nearly $400,000 a year. Not all vendors like the fee, but they do like the speed of payment, Wagner said. EverQuote encourages vendors to take card payments and tries to pay them faster, he added. Banks also make money from the interchange fees cards generate.
The company could use ACH through its bank, but the process would not be automated, he added.
Many financial institutions have recognized the opportunity to help middle market businesses automate AP with virtual commercial cards, but have not been able to offer an easy to implement and easy to use solution that fully automates the process, he added.
“Financial institutions will now be able to offer this platform to help middle market businesses improve cash flow, make real-time payments, increase security, and rely less on paper checks.
MineralTree uses OCR with manual oversight, and it connected to the firm's AP system so it can do overnight processing with 99.9% accuracy. Mid-size firms save four to six hours a week of AP clerk entry. Industry estimates are that a check costs $5 to write and mail.
"We migrate as much as we can off check and onto cards so they can get a rebate for card payments."
Add the saving from late fee improvements, man hours saved and fraud reduction, moving from checks to cards can generate $25,000 to $40,000 in card fees at a small company, he said.
In a paper it produces with PYMNTS.com, Mastercard said that 40% of middle market firms are planning to adopt real-time payments within three years, a process that often coincides with moving to AP automation.
"Leaders have a clear understanding of what automating their B2B payments processes can help them gain. Foremost among these benefits are fewer errors and reduced costs, cited by 84 percent and 81 percent, respectively."
MineralTree offers automated invoice data capture and online approval workflow and synchronization to common accounting and ERP systems like Microsoft Dynamics, NetSuite and QuickBooks.
More than 25 leading financial institutions are offering MineralTree’s solution, Krishna said.
