Make your payables pay off Featured

8:00pm EDT April 25, 2007
Making a payment can be one of the most critical components of a company’s entire procure-to-pay process and selecting the right mix of payment methods — commercial card, ACH, wire or check — can significantly improve the efficiency and cost effectiveness of the payables process and lead to measurable financial benefits for an organization.

Smart Business spoke with Jeffrey Felser, senior vice president and group product manager for PNC’s Treasury Management Division, to understand how companies can determine the right mix of payment methods for their business.

Paper? Electronic? Or a little bit of both?

Paper checks continue to be the core payment service, representing over 80 percent of the $16 trillion-plus in business-to-business payments. However, the payments business is undergoing the largest transformation in its history, as the migration from paper to electronic formats accelerates with businesses demanding more value, lower cost and simplicity.

How can an organization determine the optimum mix of payment options?

The purchasing card has the most interesting economic proposition as most banks issuing the card are willing to provide revenue sharing based on the value of the transactions being processed through a purchasing card program. Comparing the ability to generate income versus paying service fees (see the chart below) creates an opportunity to define an optimum payment mix and a winning proposition for the payer.

Knowing you can’t move all of your payments to cards, it makes sense to always think cards first, followed by ACH, then checks, to capture payments that cannot be migrated to an electronic method. Wire transfer will always have a specific role in executing timely and final payment whenever needed.

What’s the best way to process a payment?

Different purchases call for different payment types so both qualitative and quantitative analysis is required. On a qualitative basis, consider contract terms, vendor relationships, current practices and protocol, as well as the sensitivity or priority for the receipt of goods or services. On the quantitative analysis side, the size, frequency and timing requirements of the payment are considerations. Additionally, the existing financial characteristics of the transaction — such as cost of the payment for both the buyer and seller — is an important consideration.

Can commercial cards be used for all payments?

The clear winner is the organization that takes the first step in evaluating its entire procure-to-pay process and develops a strategy to optimize the payment mix. But it does make sense to think cards first for a number of reasons.

Purchasing cards are the fastest growing payment tool in the marketplace. Card acceptance has become more widespread, and cards are used to purchase almost everything a business needs — from specialized equipment to office supplies to customer entertainment.

A company can make just one payment to the bank each month to cover all of their card transactions made with individual vendors and can reduce soft costs by about $5 to $15 per invoice in accounts payable personnel and monthly check-writing activity.

Cards also enable a company to enforce their financial policies and procedures automatically, helping to mitigate purchasing risk. For example, an organization can authorize designations and dollar limits to spending requests before the card transaction takes place.

To learn how to optimize your payment strategy with purchasing cards check out PNC’s Middle Market Advisory Series at

This article was prepared for general information purposes only and is not intended as specific advice or recommendations. Any reliance upon this information is solely and exclusively at your own risk.

JEFFREY FELSER is senior vice president and group product manager for Treasury Management at PNC Bank, National Association, a member of The PNC Financial Services Group, Inc. Reach him at (412) 762-9714 or