It’s no secret that it costs more to initiate a check payment than an electronic payment.

The transaction processing costs associated with paper checks are more than 30 times as much as those for electronic payments, warns the National Automated Clearing House Association.

But transaction processing fees are just the tip of the iceberg when it comes to the cost of paying suppliers with paper checks.  There are four hidden costs that make paper checks costlier.
 

Paying Suppliers Using Paper Checks Costs More

 

HIDDEN COST #1: Wasted staff time

CFOs want their finance staff focused on value-added activities such as data analysis (think: liquidity management), supplier management, and cleaning up the vendor master database.  But the manual processes associated with paying suppliers using paper checks leaves little time for much else.

In a traditional check payments environment, staff must print, sign, stuff and mail paper checks to suppliers, deal with inevitable inquiries from suppliers regarding payment status, and manually reconcile payments and supplier invoices.  Sixty-three percent of businesses cite the operational costs around the reconciliation of invoices and payments as a major pain point, per the Institute of Finance and Management (IOFM). These manual processes are so onerous that most businesses must add staff as their payments volume increases.  

HIDDEN COST #2: Missed early payment discounts

Eighty percent of suppliers are willing to exchange discounts on the amount due on an invoice in exchange for early payment, IOFM reports.  The earlier the payment, the larger the discount.

Unfortunately, it takes so long for accounts payable departments that operate in a manual environment to pay suppliers that discounts for early payment are out-of-reach.  Whether it’s opening mail, keying invoice data, shuffling invoices to approvers, tracking down lost or misfiled invoices, or printing and mailing checks, every step in a manual supplier payments process takes too long.  

Slow supplier payments processes are forcing businesses to leave a lot of money on the table.

The average discount that suppliers offer for early payment is 2 percent, IOFM’s 2017 P2P Benchmarking Study finds.  However, nearly one-quarter of buyers in industries such as pharmaceuticals, biotechnology, consumer packaged goods, and high-tech consulting are securing discounts of more than 6 percent in exchange for paying suppliers before the invoice due date.  

HIDDEN COST #3: Poor cash management

Accounts payable departments have an opportunity to serve as an information hub by providing critical insights into working capital, corporate spending, and operations performance.  

But in a manual supplier payments environment, key information is not captured, systems are fragmented, information is not timely, and decision-makers do not have access to key variables.  Check payments processes also provide inadequate visibility into spending. Finance often does not know about an invoice until it shows up on their desk. This is a big reason why 22 percent of businesses can only forecast mid-term cash flow with 5 percent accuracy, per industry benchmarks.  The inability to plan for large amounts of spending can have ripple effects across the business.

Additionally, in a manual supplier payments environment, cost-center managers may not have real-time visibility into their business unit’s spending.  Accounts payable leaders do not have visibility into the status of invoices and payments, or the root cause of exceptions. And financial and procurement leaders cannot easily access the reports required for decision-making.

HIDDEN COST #4: No opportunities for cash-back rebates.  

Paying suppliers with paper checks offers no opportunities to earn cash-back rebates.

But businesses earn cash-back rebates on payments made via virtual card.  It is not uncommon for businesses to earn cash-back rebates on 30 percent of their spending.  In some cases, the cash-back rebates earned by businesses have transformed their accounts payable department a profit center.

The money earned through cash-back rebates and the other working capital strategies described in this white paper can provide CFOs with the money to automate invoice processing.  

Paper checks are likely costing your business more than you think.  Paying more suppliers electronically eliminates these costs, enabling accounts payable to deliver value to the business.

Learn more about paying suppliers via electronic payments.

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