After years of paying suppliers primarily with paper checks, corporate America is paying more its bills with electronic payment mechanisms such as Automated Clearing House (ACH) and cards.
And if research from the Institute of Finance and Management (IOFM) is any indication, the move away from check payments to suppliers will gain momentum in 2019.
The typical business pays 39 percent of its supplier invoices with a paper check, topping ACH transactions (which represent 30 percent of all payments to suppliers), wire transfer (9 percent) and virtual card payments (6 percent), IOFM reports. The smaller the business, the more payments it makes to suppliers via paper check.
Driven by a desire to reduce costs, accelerate cycle times and mitigate the risks of payments fraud, 70 percent of businesses have a strategy in place to increase the percentage of supplier payments that they make electronically. Within three years, businesses surveyed by IOFM anticipate that paper checks will represent only 18 percent of their payments to suppliers, while ACH transactions will account for 38 percent of their supplier payments and virtual card payments will make up 16 percent.
Benefits of Electronic Payments
If this comes to pass, more businesses will have completed the ‘last mile’ of payables automation: digitizing their financial operations from invoice receipt through payments settlement. Beyond ballyhooed cost savings and efficiency gains, paying suppliers electronically helps businesses:
- Earn cash-back rebates on card spend
- Capture more early-payment discount opportunities
- Normalize payment terms for extended Days Payable Outstanding (DPO)
- Achieve enhanced visibility into cash and spending across the P2P cycle
All told, the working capital improvements provided by electronic payments optimization delivers five times greater financial benefit, on average, compared to invoice automation on its own.
8 strategies for electronic payments success
Is increasing the percentage of electronic payments to suppliers on your business’ agenda in 2019?
If so, here are eight strategies to help ensure that your efforts are a success:
1.Work with key stakeholders such a treasury and procurement to define organizational goals.
2.Look for an electronic payments solution that works with your enterprise resource planning (ERP) platform, so you can have streamlined payment file processing that leverages your organization’s existing standards, and real-time visibility into the status of all payments.
3.Ensure that your electronic payments program supports multiple payment methods — including ACH, virtual card and even paper check – to support the needs of all suppliers while achieving operational efficiencies and cash-back rebates from electronic payments.
4.To drive electronic payments adoption, make sure your electronic payments solution provides suppliers with standard electronic remittance information across various payment methods.
5.Be sure the payments solution provides you with all data necessary for reconciliation.
6.Focus your electronic payments adoption efforts by having your solutions provider review your vendor database to identify businesses that accept virtual card and ACH payments.
7.Develop a plan for notifying your suppliers that you can now pay them electronically. Be sure that all communications to suppliers appropriately reflect your organization’s brand.
8.Use program management status and reporting to trade progress and identify adjustments.