Checking Out of the Comfort Zone and into E-Payments

  • By Andrew Deichler
  • Published: 1/7/2014
Although electronic payment methods continue to make headway in business-to-business transactions, paper checks remain the method of choice. Is there any one thing that will finally push corporates over the threshold and prompt them to move on to electronic payments?

In September 2013, AFP conducted a survey of its corporate practitioner members on the barriers on their payment methods, and received 484 responses. The 2013 AFP Electronic Payments Survey, underwritten by J.P. Morgan, found that about 50 percent of treasury and finance professionals still use checks for B2B payments. Check usage is clearly declining; it was 54 percent in 2010 and 74 percent in 2007, but there is still a long way to go before paper is truly phased out of the system.

“B2B is still the toughest area in which to gain traction for electronic payments,” said Anita Patterson, CTP, director of treasury services for Cox Enterprises, during an AFP webinar on the survey. “Frankly, I was pleasantly surprised that 50 percent of B2B payments are being made electronically. Not surprisingly, the largest companies—those that have at least $1 billion or more in revenue—use checks for a smaller share of their B2B payments than do the smaller companies. The larger companies use checks for about 40 percent of their payments, whereas the smaller companies use checks for about 63 percent of their payments.”

Simply put, checks work for smaller companies. They are not complicated, and many companies do not see a reason to change.

That is not to say that corporates are not very interested in moving to electronic payments. One in five Electronic Payments Survey respondents said they make the majority of their payments electronically. Moreover, 48 percent of survey respondents said their organizations are likely to convert a majority of B2B payments made to major suppliers from checks to electronic payments over the next three years.

Additionally, many corporates do see the pitfalls in relying on paper checks for the long haul. In an AFP  webinar poll, about 47 percent of members said that they believe U.S. businesses might be missing out on international trade due to their relatively high use of checks.

One key barrier to ACH payments is a lack of straight-through processing (STP), which is actually easier to achieve with paper checks. With ACH, remittance information is an issue. Fully 74 percent of businesses send remittance information via email, separate from the actual payment, making STP more of a manual process. “A lockbox is actually a more efficient method,” noted Magnus Carlsson, AFP’s manager of treasury and payments.

In an AFP webinar poll, about 99 percent of members said that the ability to send all remittance information along with the payment itself would be beneficial. Getting over this hurdle could be a game changer for many organizations.

Lastly, many treasury and finance professionals find the process of electronification cumbersome and costly. One thing that might help in this regard is an open directory that contains basic electronic payment information (Bank ID, account numbers, etc.). With such a guide in place, nearly 44 percent of respondents to an AFP webinar poll said they would be more likely to switch from checks to electronic payments.

Many corporates are certainly aware of the benefits of converting to electronic payments. Fifty-seven percent of survey respondents cited cost savings as a top benefit of transitioning to electronic payments. Additionally, improved cash forecasting (46 percent), fraud control (39 percent) and more efficient reconciliation (37 percent) were also named as key reasons for making the switch.

But while many companies might want to stick with what is familiar, corporates can build a business case to move on from checks. A great example is the New York City Finance Department, which won AFP’s 2013 Pinnacle Award Grand Prize for developing electronic payments functionality responsible for collecting $49 billion of receipts generated by 29 million payments from 36 individual agencies.

From Carlsson’s perspective, corporates must begin making that business case, which he views as the key for a major shift to happen. “Whether the business case is based on the enhanced efficiency of new technology, or based on higher cost for legacy payment methods makes no real difference—a business case is a must,” he said.

Download the 2013 AFP Electronic Payments Survey here.
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