Most business-to-business payments continue to be made by check, but electronic forms of payment such as ACH and cards are gaining ground. That trend will continue, as companies convert the majority of their business-to-business payments to major suppliers from checks to electronic payments over the next three years, says Jennifer Hall, treasury management services representative at Associated Bank.

“Although electronic payments may not fit every business need, they are becoming more attainable for companies of every size,” says Hall.

Smart Business spoke with Hall about how to move your business away from paper payments, thereby having more control over your cash flow.

What are the obstacles to moving to electronic payments?

A company’s ability to move to an electronic payment environment depends on many factors, including the potential financial impact, the type of industry, a willingness to change and an aptitude in working with automated systems. One challenge is simply that payments are made in multiple ways. Some businesses receive payments in four or five different formats — credit cards, electronic payments, checks sent to the office or checks to a lockbox, etc. When evaluating payment options, the challenge is to use the method that works best for you and your trading partner, keeping in mind the need to include required remittance information.

What are the benefits of electronic payments?

There is great value in moving away from paper-based payment processing, but the timing has to be right for your business. There are three main benefits to electronic payments over paper. Costs are reduced as the result of a reduction in the need for check stock, postage and manual labor; certainty of cash flow (due to the elimination of  guesswork); and the minimization of fraud risk. Every time a company mails a check, it risks its account information falling into the wrong hands.

According to The Accounts Payable Network, a group of more than 3,000 accounting, finance and AP professionals, in response to, ‘What is your cost to issue a check?’ answers ranged from six cents to more than $100. This fluctuation is why more companies continue to shift payments to ACH, purchasing cards and repetitive wires. Every step of a manual process contributes to higher costs, from the receipt of paper invoices to keying in invoice data, issuing paper checks, postage, taking phone calls from suppliers and missed opportunities for early pay discounts.

Are electronic payments catching on?

While electronic invoicing may be a far-off goal for some, electronic payments are here for good. Their popularity will continue to increase in business-to-business transactions as check volumes steadily decline, because electronic payments are efficient and the best way to more precisely target a business’s cash. The days of counting on float in check disbursements are winding down, with faster movement of electronic images in the banking system. Additionally, pinpointing the days you want to receive and disburse money can help you streamline cash forecasting.

How can automation with lockbox help streamline the payment process?

Lockbox is a timesaving solution, automating the processing of check payments. Checks  are sent with remittance information to a post office box owned by your bank. The bank opens the mail, sorts and images it, so that customers have access to images of both the check and the invoice. Deposits are made the same day, which improves cash flow and eliminates the time staff spends sorting through mail and making deposits manually.

This process can be further automated by having the lockbox area data enter pertinent remittance information. This is tied to the corresponding check, formatted into a data file and available for upload into your AR system, automating your cash application processes.

Generally, companies experience an 80 to 95 percent hit rate, allowing redeployment of AR staff to more value-added tasks. Banks can even merge various payment types into one data transmission, providing a single file however payment was made.

In addition, lockbox reduces paper filing and storage. Instead of receiving paper, a business receives an electronic file for uploading into its accounts receivables records. Access to electronic images of checks and invoices eliminates the need to take up space storing paper copies.

How do the majority of U.S. companies process payments?

According to the 2009 electronic payments survey from the Association for Financial Professionals, for payments to major suppliers, the typical company makes an estimated 48 percent of its payments by check, 22 percent by ACH credit, 5 percent by wire transfer and the remainder as ACH debit or credit card payment. Going forward, 48 percent of respondents expected that their organization is very likely to convert the majority of its business-to-business payments to major suppliers from checks to electronic payments in the next several years.

Will checks continue to be a part of business-to-business transactions?

Checks are still a very big part of business-to-business transactions. When making the transition to electronic payment processing, start slowly. Evaluate the best way to initiate the payment, then decide how to send remittance information. Before taking action, there are important conversations to have with your vendors, customers and your bank. Developing automated processes can strengthen relationships with key suppliers while improving the speed and accuracy with which invoices and payments are processed. <<

Deposit and loan products are offered by Associated Bank, N.A. (“AB”), Member FDIC and Associated Banc-Corp (“AB-C”). Loans subject to credit approval. Equal Opportunity Lender.

Jennifer Hall is a treasury management specialist at Associated Bank. Reach her at (312) 565-5275 or jennifer.hall@associatedbank.com.

Published in Chicago