Moderated by Sherry, Digital Transformation Consultant at Hyperbots
Sherry: Hello, and welcome to all our viewers on CFO insights. I am Sherry, a financial technology consultant at Hyperbots, and I’m very excited to have Jon Naseath with me, he is an accomplished executive with expertise in AI machine learning and computer vision driving impactful technology solutions in education, healthcare, and business. Thank you for joining us today, Jon, to discuss straight-through processing of invoices. Now let’s dive right in. Why do you think companies implement constraints on straight-through processing of invoices, even in seemingly straightforward scenarios, like three-way or two-way matching?
Jon Naseath: Yeah, I think the basic answer comes down to trust. The idea that someone’s manually looked at it and verified just gives additional comfort when someone’s not trusting the source data that they’re looking at. I think the short answer is just trust.
Sherry: And in your experience, what are the most common value-based constraints that companies put in place for STP and VI?
Jon Naseath: Yeah, I think usually it comes down to certain dollar amounts. So if it’s a high-volume, low-dollar amount processing, they’ll let those payments go through. But then for bigger ones, they’ll do so like even banks have thresholds of, say, $10,000 for something international. They’ll want additional details about it. I think, though, that doesn’t necessarily mean that you’re safe. I think that there are often situations where someone is going to do something fraudulent, they’ll intentionally do it below that threshold. Quick example: I was talking to a friend of mine, who’s the CEO of a company, and over lunch, he told me about how one of his trusted employees over the last year had been buying products and shipping them to their home for different things that they wanted and using them for personal uses. And it was small amounts here and there, but when they added up, it was very impactful for the company and certainly nothing that was authorized. So I just say be careful of even the small amounts. You need to have good control and be careful around them too.
Sherry: And looking at the industry, how do vendor-specific constraints impact the straight-through processing process? And what factors might lead a company to require manual review for certain vendors?
Jon Naseath: Sure. Different vendors, you know, every vendor is going to run into trouble at some point. Every vendor is going to try to stretch a payment or just pay you late because they can. Even big companies will do that just out of policy. So having a way to review what is there and watching for controls around fraud is important. Even companies with a consistent record of accuracy and reliable payments may have their invoice processed automatically, and you can let those go through. But you need to monitor and kind of give a credit score or credit profile for the different vendors you’re working with.
Sherry: In talking about different obstacles, what are the challenges associated with STP for foreign versus domestic vendors? And how do companies typically address these challenges?
Jon Naseath: Well, one aspect is that foreign companies, may take longer to get paid, or it may take longer when you do pay them. You have to be able to pay via wire, where otherwise you might be able to send a direct payment. So just the processing is different. I wouldn’t say that there’s an increased risk, although some countries, sure, if they’re ones the US has limitations on, you’d want to be careful but your bank will usually not let you send money to those anyway. So as far as straight-through processing, I don’t know that the processes themselves would be very different, but it would just be different risk profiles of the companies individually, as was mentioned before.
Sherry: And can you discuss the differences between contract-based and non-contract-based invoice processing, and how these differences affect the decision to use STP?
Jon Naseath: Sure. With contract-based invoices, you have a contract that defines what you’d be able to then pay on the invoice. If it’s non-contract-based, there might not even be an invoice either, and so there can be situations where a payment needs to be done without a formal invoice or contract. While most would say it’s not possible, I’ve seen situations where this can happen. And there are a lot of scary things happening with AI, where someone mimicked my voice and told a CEO to send a payment. Luckily, we had controls in place to catch it. So, contract control, invoice control, or even keyword control there are bad actors, and companies need to stay ahead of these with good controls.
Sherry: That sounds like quite a challenge, Jon. From what you’ve seen in the industry, how do companies typically handle PO-only matching scenarios? And why might they opt for manual intervention in these cases?
Jon Naseath: With PO-specific invoices, it’s approved, but you still need to verify if the work has been provided. A lot of times POs are done for services, and you end up relying on the project manager to verify that the work has been completed and approved before payment. Hopefully, the program manager stays on top of the project and approves only the work that has been completed and deserves payment.
Sherry: What are the risks associated with processing non-PO and non-GRN invoices? And how can AI help mitigate these risks?
Jon Naseath: With non-GRN and non-PO invoices, the risk is that without proper documentation, it’s easier for fraud to slip through. AI is great at spotting patterns, discrepancies, or things that don’t tie out. I’ve seen situations, where people swap out letters or change small details to make fraudulent payments, look legitimate. AI is much better at catching these subtle fraud attempts than humans.
Sherry: And finally, since AI is a trending topic, how do you see the role of AI evolving in the context of STP, especially with the various constraints we’ve just discussed?
Jon Naseath: AI is great because it can act like someone watching your back, monitoring transactions, and raising red flags when something doesn’t align. AI can help with both preventative and detective controls, identifying things designed to trick humans. In the long term, AI will play a crucial role in safeguarding against inconsistencies and helping businesses process payments more efficiently and securely.
Sherry: Thank you so much for these insightful answers, Jon. It’s clear from this interview that AI offers a promising solution to navigate such complexities.
Jon Naseath: Pleasure.
Moderated by Emily Digital Transformation Consultant at Hyperbots
Emily: Hey, everyone, this is Emily, and I am a digital transformation consultant at hyperbots today on the call with me. I’m extremely happy to have Anna. Anna Tiomina is the founder of Blend to Balance Llc, with over a decade of experience in senior finance roles. Anna is also the leader of AI innovators in finance and beyond a community dedicated to merging tech innovations with traditional finance.
Emily: Really happy to have you, Anna.
Anna: Thanks for having me.
Emily: Excited to hear your insights on how AI is revolutionizing the detection of fraud and anomalies in vendor payment. So let’s dive right in as a CFO. Anna, how do you see the importance of detecting fraud and anomalies in vendor payments?
Anna: Yeah. So detecting fraud and ensuring compliance is one of the key functions of financial operations. In recent years we see much more fraud in this area. So it is challenging for CFOs to keep up with the technology and to be always ready to react to the new ways. The fraud actors are trying to reach the companies. So it is a really critical and very challenging task nowadays.
Emily: Correct. So, Anna, what are some of the most common types of fraud and anomalies you’ve seen or heard in vendor payments.
Anna: Yeah, so there are simple ones like replacing the bank account number on an invoice with a fraudulent bank account number. It can be as simple as sending the invoice that was never approved for payment, and the service or product was never received. It can also be inflated invoices, either through the pricing or through the quantities of products or services on the invoices or for example, demanding a payment before the product or service was delivered or received. So these are the most common risks.Listed vendors, and sometimes, if the company has some processes in place, the requester. The payment requester splits the invoice to get to a lower approval level. Sometimes it is a fraud, and sometimes it’s just a mistake or an attempt to speed things up so it can really vary. But each of these events represents a risk.The funds that the company is mistakenly or fraudulent to send cannot be revoked in many cases. So I mean, that’s a huge thing for the company to be able to keep things in order in this space.
Emily: And how can these frauds and anomalies be prevented with traditional methods per se?
Anna: Well, so what companies do they implement internal controls? They implement processes. They implement things like freeway mention. Right? So you have a PO that has to be approved. Then you have an invoice that has to be made to the Po, and then the invoice has to be approved on a different approval. Flow? Some companies don’t have POS. They have things like for ice principle, for example, like no payment, gets released until at least 2 people take a look at that. So you need 2 approvers on any payment going out. Also, companies try to make sure that the processes and these rules are followed. So there are things like internal audits. Kind of like processes that make sure that the forest principle is followed. For example, right, or the person that is sending the fund does the verification of the vendor before the funds are being sent.Still, all of this is very time consuming. This is prone to human error. This involves a lot of people in the company, and it doesn’t guarantee that the fraud or mistake doesn’t happen.
Emily: Got it. Got it So, Anna, how does AI enhance the detection of these frauds and anomalies compared to the traditional methods.
Anna: Oh, yeah. So the way I look at that is that AI is another pair of hands or another pair of eyes on your team that doesn’t get biased. That doesn’t get tired. That doesn’t cheat right? So this is another level of control that really helps to correct the bias that your team might have or spot the patterns that can be missed by humans. So AI, for example, can detect subtle differences in the invoices or flag, the duplicated invoices or spot the difference between the original purchase order and the invoice or compare the current, invoice with the historical data, and make sure that the mistakes that happened in the past don’t go forward into the future. So, having an AI complement, your team is a really really helpful tool.
Emily: Got it understood. And can you please help me understand, you know how AI can help prevent duplicate payments and overcharging and vendor invoices?
Anna: Yeah. So that’s a great question, because duplicate payments are a little bit hard to catch, because the invoice looks correct, right? And unless you have really really good controls in place. You might miss that. This is the duplicate invoice, and paid twice, either by mistake or as a result of fraud. So AI can compare the invoices and identify these duplicated invoices better than the humans can do. Also, AI is really great at comparing the invoice against the PO. If the company has a PO or the contract, or the sow, making sure that the vendor hasn’t overcharged the company, and that the agreed terms in the original documents are followed. This can be a very time consuming task for people to find the correct document to find the right line on this document, etc. So AI really shines here, and it saves a lot of time and effort for the human team.
Emily: That’s pretty incredible. So, Anna, what role does AI play in ensuring that payments are made only after you know the goods or services are received?
Anna: Well in a classic case, right, You would have a 3 way match process, and the Requester would have to push some button in your software that you’re using to confirm that the goods for services have been received sometimes. This process doesn’t work. Sometimes the requester wants to really push the payment forward to enhance their relationship with the vendor, or like for other reasons. So AI can really track the history of relationship with the vendor and also make sure that I mean, if there was a certain amount of time where the service was expected to be delivered, that these all timelines are followed. So again, this is another level of control, another pair of eyes that can be really helpful.
Emily: Got it and how does AI help in detecting payments made to unlisted or fraudulent vendors per se?
Anna: Well, yeah, that’s an excellent question, because like, usually, the companies have some controls in place to make sure that the payment doesn’t go to an unlisted vendor, and you will have to add each new vendor manually. But what sometimes happens is that you have, for example, an improved vendor. But then the invoice kind of duplicates the name, but that has other payment details. And this is how you send the funds to the wrong account. Number right, so AI can help verify that the original payment details are corresponding to what you received from your vendor when the vendor was listed and approved. Also there are public databases of fraudulent vendors. So AI is great to, you know, to be tasked with monitoring these databases and flagging.You know the fact that you might be paid to someone who is not on your approved vendor database. So again, because there is such a rise of fraud nowadays it is very difficult to keep track of everything that’s going on. So having technology as a compliment, your team is really really helpful and increases the team efficiency, too.
Emily: Got it and just to summarize everything, Anna, you know, looking ahead, how do you see the role of AI evolving in the area of vendor payment management?
Anna: Yeah. So I think that now we see just the beginning of AI complementing the Ap teams, I think that it’s gonna be used more and more, because this is just so efficient and handy, and also honestly, because the fraud actors are using a lot of AI. It is impossible to really like, offset this effort without having technology on your side too. So it’s like a race of technologies in a way. And I think that at some point it’s gonna be like a must have for the companies to have some level of AI in internal fraud. Detection process.Not immediately. But we are getting there.
Emily: Definitely. Thank you so much, Anna, for joining us today and talking to us about, you know such an important topic. Thank you for the valuable insight. It’s clear that AI is transforming the way we manage and protect our financial operations, and how, especially in the realm of vendor payments. So thank you once again.
Anna: Thank you for having me.
Moderated by Moderated by Niyati Chhaya, Co-founder at Hyperbots
Niyati Chhaya: Hi everyone, good morning, good evening, and good afternoon. This is Niyati Chhaya. I am a co-founder and I lead AI at Hyperbots. I am thrilled to have Mike with us today. Mike Vaishnav is a CFO, Consultant, and Strategic Advisor to many privately owned organizations. We’re going to pick his brains on AI and compliance. But before that, Mike, why don’t you introduce yourself?
Mike Vaishnav: Thank you, Niyati, it’s a pleasure to be here. I’ve been working in Silicon Valley for about close to 30 years in diverse industries. I’ve had the opportunity to touch each and every aspect of finance, from the controllership role to FP&A, treasury, tax, investor relations, and more. In my last two roles, I also managed operations departments like HR, IT, facilities, legal, and procurement. So, I bring a broad range of experience in finance and operations.
Niyati Chhaya: Wow, I think you are the right person to talk about finance, compliance, and how AI will help in compliance. How do you think AI will assist in compliance?
Mike Vaishnav: AI can significantly enhance compliance. With the right algorithms, AI can flag issues related to government and regulatory requirements. By identifying violations early, companies can address problems before they escalate. AI helps ensure that businesses are operating within the bounds of policies and regulations.
Niyati Chhaya: Got it, and I assume AI can help with fraud detection as well?
Mike Vaishnav: Absolutely, fraud detection is a critical area where AI can be very effective. By monitoring data and raising flags at appropriate levels, AI can help mitigate fraud and ensure compliance with regulatory requirements.
Niyati Chhaya: Do you think AI can play a role in the audit process?
Mike Vaishnav: Definitely. AI can analyze vast amounts of data and identify specific patterns and exceptions. For example, AI can track journal entry approvals, identifying who processed and approved entries. This can streamline the audit process, allowing auditors to focus on more value-added functions rather than spending time on sample tests and data checks.
Niyati Chhaya: Do you think AI can ensure the accuracy of financial reporting?
Mike Vaishnav: Yes, AI can enhance the accuracy of financial reporting. While ERP systems are robust, there are instances where information might be missed. AI can identify these gaps early by using predefined rules and algorithms. For example, when generating financial statements, AI can ensure that all relevant chart accounts are included, reducing the risk of errors. Additionally, AI can assist in compiling and analyzing data for SEC filings, providing insights that ERP systems might not offer.
Niyati Chhaya: Thanks for those insights. My takeaway here is that building reliable AI systems can greatly benefit compliance processes.
Mike Vaishnav: Absolutely. Compliance is crucial for all finance professionals. With AI ensuring compliance, finance teams can rest easy, knowing that they have a reliable system monitoring their processes. AI provides detailed analytics, helping to maintain and improve compliance.
Niyati Chhaya: Got it. Thank you so much, Mike, for sharing your expertise and insights on AI and compliance.
Mike Vaishnav: My pleasure.
Moderated by Emily Digital Transformation Consultant at Hyperbots
Emily: Hello everyone! Good morning, good evening, or good afternoon, depending on where you are. Today on the call, I’m very pleased to have John with me. John is a CEO at LivData LLC. And today we’ll be talking about emerging new class of payments like VCP or virtual card payments for vendors. But before we dive into it, John, would you like to introduce yourself and give us a little more background?
John: Sure, thank you, Emily, for having me again. So my background is in finance automation, which is a big part of what I do. I go in, do assessments for companies, and figure out how to meet their strategic goals and objectives through people, process, and technology.
Emily: Thank you so much, John, for that introduction. So let’s actually, you know, begin with the basics. Can you explain what the emerging new class of payments such as virtual card payments entail and how it differs from the traditional payment methods?
John: Yeah, so there’s a lot loaded into that question because there’s different reasons to use virtual card payments. It can be budgetary for a business, allowing them to control the expense for a specific purpose that ties to an account. You can set up a virtual card payment for a specific purpose. There are two types of virtual card payments: single-use, where the card can only be used once for a specific approved PO, and multi-use, which can be set up for a specific category like fuel or a merchant-specific category, controlling how and where the card is used.
Emily: Got it. And John, what are the key features and benefits of virtual card payments for vendors, and how does it impact financial operations?
John: Yeah, it can make things more complex because there are more payment methods, which can lead to more manual processes than having all your ACHs regularly scheduled. If you don’t have the right tools and systems for the FinTech part of the payments process, it can be challenging. However, there are benefits such as participating in interchanging rebates, limiting single-use for security, and proper approvals to prevent unauthorized use. These controls enhance cybersecurity and overall financial operations.
Emily: Got it, got it. So moving to adoption and implementation, how widespread is the adoption of VCP among vendors, and what factors influence their willingness to accept such payment methods?
John: Currently, adoption is growing, especially among larger organizations that want the rebates and controls. Some vendors are reluctant due to the complexities and additional labor required. As FinTech solutions improve, making the process easier and more secure, adoption will likely increase. Understanding the cost of processing different payment methods also influences the decision, as some companies might switch back to ACH or checks due to perceived cost savings.
Emily: Got it, got it. So John, can you share any experiences or challenges encountered during the implementation of virtual card payments or VCP within your organization or even among other vendors?
John: The biggest challenges are getting vendors used to single-use cards, as they might prefer electronic methods or ACHs. Ensuring the process is automated and integrated with portals can ease this transition. The key is to make the system as seamless and secure as possible, similar to how ACH schedules work.
Emily: Got it, got it. So then, we go a little deeper into benefits and challenges. What are the primary benefits that VCP offers to organizations in terms of cost savings, efficiency, and security?
John: The cost savings from cash back and tying expenses to budgeted items with proper approvals are significant. It enhances efficiency by ensuring transactions match and are categorized correctly. The biggest benefit is improved security, as single-use cards reduce fraud risks compared to traditional methods like checks or ACHs.
Emily: Got it, got it. Conversely, what challenges or drawbacks might organizations face when transitioning to VCP for vendor payments in particular?
John: Not all vendors accept credit cards, and there’s resistance due to the interchange costs and manual processes involved in taking new cards regularly. The transition can be labor-intensive and requires significant effort to educate and integrate vendors into the new system.
Emily: Got it, got it. How does VCP impact vendor relationships, and have you noticed any changes in vendor behavior or preferences since implementing VCP?
John: Some vendors push back due to interchange costs and manual processing requirements. They may prefer ACH or direct payments for ease. However, as automation and ease of use improve, these relationships can become more streamlined and mutually beneficial.
Emily: Speaking about security and compliance, how do VCP solutions ensure security and compliance with regulatory requirements, particularly in terms of data protection and fraud prevention?
John: VCP solutions offer enhanced fraud protection through single-use cards, reducing the risk of misuse. They also eliminate the need to store sensitive information like bank details, which can be a compliance risk. This makes VCP a more secure option overall.
Emily: Can you discuss the integrations of virtual card payment systems with existing financial systems and workflows and elaborate on how scalable these solutions are to accommodate growth and changes in payment volumes?
John: Integration capabilities are robust, with APIs allowing connections to various ERPs. When set up correctly, VCP systems are very scalable, benefiting large organizations with established portals and workflows. For smaller companies, the initial setup cost can be a barrier, but overall, scalability is high as technology advances.
Emily: From a future outlook standpoint, what do you foresee as the future of emerging payment methods like VCP, and are there any emerging trends or advancements that you believe will shape the landscape?
John: I believe the future will see a shift away from checks towards more secure and efficient methods like VCP. Emerging trends include the use of cryptocurrencies for global payments, which could further revolutionize the payment landscape. Enhanced fraud protection and ease of use will drive adoption.
Emily: Based on your experience and insights, do you have any additional advice or recommendations for finance professionals considering the adoption of emerging payment methods like VCP?
John: Be aware of the implications and understand the true costs of different payment methods. Stay informed about the tools and technologies that make these processes easier. Embrace innovation and don’t get frustrated with initial challenges. The benefits of security, efficiency, and cost savings will be substantial in the long run.
Emily: Thank you so much, John, for sharing your expertise on the topic of emerging payments. The discussion was truly fruitful, and it was great having you here.
John: Thank you.
Emily: All right, thank you, John.
