Barriers Continue to Obstruct Adoption of  Electronic Payments in B2B Transactions

New AFP Survey Shows Organizations are More Willing to Migrate to Electronic Payments

October 26, 2004 – BETHESDA, MD – Organizations are more willing to migrate from checks to electronic payments for business-to-business transactions (B2B) today than they were four years ago, according to a new survey released today by the Association for Financial Professionals (AFP). The AFP 2004 Electronic Payments Survey, however, also finds that a number of significant barriers obstruct progress toward the wider use of electronic payments by businesses.

While more than 75% of B2B payments are currently made by paper check, 28% of respondents to the survey indicate that their organization is very likely to move to electronics for the majority of their B2B payments in the next three years. Additionally, half (50%) of respondents said that it was somewhat likely that their organization would move to electronic payments in that time period. The increased willingness to move away from checks is in sharp contrast to an AFP survey conducted four years ago, when only 9% strongly agreed that their organization was likely to convert to electronic payments within the next three years.

“Most B2B payments continue to be made by paper check, the future of payments is clearly electronic,” said Arlene S. Chapman, CTP, the Association for Financial Professionals’ Senior Consultant, Technical Services. “Electronic payments are gaining ground among some organizations, especially those with annual revenues greater than $1 billion.”

The survey found that large organizations send and receive significantly fewer check payments than smaller organizations, and are more likely to have integrated their accounts payable (A/P) and/or accounts receivable (A/R) systems. For example, 56% of larger organizations said in the survey that they have already integrated part or all of their accounting systems with an electronic payments system, compared to 35% of smaller organizations.

Financial professionals identified barriers that obstruct progress toward wider adoption of electronic payments in B2B transactions. In the survey respondents gave nearly equal weight to four major barriers: accounting systems that are not integrated with electronic payment systems; shortage of IT resources; lack of a single standard format for remittance information; and trading partners who cannot send or receive electronic payments with sufficient remittance information.

“When existing check systems work well – as most respondents reported in the survey – it can be difficult to make a business case for systems changes that would make electronic payments more efficient, or even feasible,” said Douglas E. Downey, CTP, Assistant Vice President at HCA Inc. and Chairman of AFP’s Payments Advisory Group.

Survey respondents also pointed to four “wish list” solutions from bankers and software vendors that would increase their use of electronic payments: accounting software that integrates with electronic payments; bank services that provide straight-through electronic payment processing to accounting systems; a standard data format; and improved fraud control over Automated Clearing House (ACH) payments.

In spite of the obstacles, financial professionals report slow but steady progress in the move to electronic payments for B2B transactions. To comply with Sarbanes-Oxley – or for other business reasons – 28% of respondents state that their organizations will purchase software or use a third party service to integrate accounting and electronic payment systems. Eighteen percent (18%) will implement software that links their financial systems with those of their suppliers or customers. Others will take a different route to an electronic system. Using the check image capabilities that are an outgrowth of Check 21, over a quarter (28%) of organizations plan to image the checks they receive and send images to their banks for clearing and settlement. Respondents report that ACH credits are currently the most widely used electronic payments method, followed by wire transfers. Purchasing cards are not often used as a primary payment method.

“We expect to see moderate growth in B2B electronic payments in the next two years, and especially among the larger organizations,” Chapman concluded. “AFP will take the lead in working with its members, financial institutions and software providers to enable our members’ organizations to realize the full potential of electronic payments.”

A copy of the report can be obtained at http://www.AFPonline.org/epay

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The Association for Financial Professionals, headquartered in Bethesda, Maryland, supports more than 14,000 individual members from a wide range of industries throughout all stages of their careers in various aspects of treasury and financial management. AFP is the preferred resource for financial professionals for continuing education, financial tools and publications, career development, certifications, research, representation to legislators and regulators, and the development of industry standards. For more information about AFP visit www.AFPonline.org.