In today’s market, there are two major
considerations when choosing a mix of
payment options: cost and fraud protection. Both are vital. However, most business owners know there are several routes
they can take, and it can be confusing.
“The ‘right’ payment mix delicately balances costs, security/control needed, settlement timing, and the frequency of the
payment transaction,” explains Matt Zeck,
vice president at Fifth Third Bank in
Smart Business asked Zeck for tips on
choosing the best options available to
businesses today — while avoiding problems like payment fraud.
What are some of the payment options available these days?
Today’s financial marketplace continues
to support the traditional payment options
of cash and check. However, additional
instruments, such as ACH (Automated
Clearing House), wire transfers and the
use of purchasing cards have expanded
the payment option spectrum and provided additional enhanced benefits for business entities.
As the size of the transaction dollar value
increases and the frequency of the payment decreases, the accounts payable
operational focus shifts from one of
increasing efficiency to one of maintaining
Companies will generally use wire transfers (a more expensive but much more
secure form of payment) for capital purchases that are done very infrequently. An
example might be buying a company airplane. More often these days, companies
use credit cards (purchasing cards or T&E
cards) to complete more routine or commodity-type transactions like buying
office supplies. In the middle is the use of
ACH to electronically transmit funds
securely from one organization’s accounts
to another, say, direct deposit of payroll to
Of course, all of the payment examples
above can be completed using the traditional check method — still used heavily
by businesses today.
Are any of these methods more secured
The security of the method of payment is
an important factor in determining what
method to use. Wire transfers typically
have the most security built into them —
due to the necessary bank documentation
required to establish wire transfer services
and the approvals built into the system
itself. As a result, wires are typically the
more expensive payment method.
Use of the ACH system is a very economical alternative, while still maintaining
good security protocol. Additionally, the
‘timing’ of when the funds will clear the
account (based on the effective date put on
the payment file) is a security advantage of
ACH in that excess funds can be appropriated accordingly.
The use of card programs has greatly
advanced over the past few years and
numerous security enhancements have
evolved to protect the company (and
banks) using the plastic payment options.
Security controls, such as credit limits, amount per transaction, dollars and number of transactions per day limits, per card
cycle date limit, and restrictions of use
based on the industry and types of goods
sold by the merchant (identified as their
Merchant Category Code — MCC), have
provided enhanced levels of security for
putting cards into the hands of employees
to purchase needed items.
And it certainly goes without saying that
with the use of paper checks, employing
Positive Pay check fraud protection services is strongly encouraged. Each time a
check is written and distributed, all the
necessary information to perpetrate fraud
is released into the financial marketplace.
Positive Pay helps protect companies’ cash
and identify potential fraud before it financially impacts them.
Given the economy, shouldn’t a firm just push
for the lowest-cost methods?
Under the old adage ‘you get what you
pay for,’ sometimes the lowest-cost methods offer more exposure to fraud opportunities or limit the ability to properly fund
for the disbursement item. Checks are a
low-cost alternative, but they are subject to
fraud and companies must maintain balances in their accounts until the check
clears at a later, undeterminable time (usually two to seven days).
Things change. Who should I talk to for
updates on new or more secure methods?
A discussion with your financial adviser
or treasury management specialist will
help begin the discovery conversation
related to a company’s current payment
mix and help identify opportunities for
more secure payment alternatives.
The more sophisticated a company’s disbursement mix becomes, the greater the
need for a treasury management specialist
to assist in configuring the right payables
structure. Most local bankers have treasury
management partners they consult with for
more complex disbursement designs.
MATT ZECK is vice president and commercial sales manager for the corporate treasury management team of Fifth Third Bank's
Cincinnati and Northern Kentucky markets. Reach him at (513) 534-0344 or Matthew.Zeck@53.com.