It was not so long ago that a trip to the grocery store could be ruined by a single action: having the person at the front of the checkout line decide to pay by check (a decision that was seemingly always made at the last second). From an uncertainty in knowing current account balances, to the difficulty of scrawling the correct amounts and payee names, a check transaction could easily break down and take ten or twenty times longer than a cash—or better yet, a card transaction. Frustration for all parties was a typical outcome.
Today, enterprises that insist on paying by check have, in many ways, become that check-wielding shopper, inefficient, slow to execute, and a general drag on stakeholder productivity. But, just as today’s checkout lines are expedited by electronic card or debit transactions, the global business-to-business (B2B) infrastructure is now enabled by robust electronic payment platforms that provide greater visibility, speed, and accuracy—all at significantly lower costs
In order to get to this point, AP must go through a similar transformation that for the most part has already happened in many procurement organizations. They must transform their systems and processes and do so by leveraging automation. More specifically, when it comes to B2B payments, if an AP group is looking to be more strategic and add more value as a business function, the migration away from checks towards electronic forms of payment is quickly becoming a necessity.
Automation within the P2P process has been a driver of enterprise performance for many years and continues to do so, however, it is only over the last few years that there has been a significant uptick in automation initiatives that include B2B payments. ePayments are an essential component of the P2P process and enterprises are increasingly thinking about this process in a holistic manner. ePayments offer a higher level of efficiency, visibility, accuracy and collaboration, not only throughout an enterprise, but to its extended supply chain. Some of the key reasons why ePayments make great business sense include:
- Lower processing costs and increased efficiency – The cost to process any form of ePayment whether wire transfer, ACH, or card is significantly less than a check. Paper checks are time consuming and tedious to process and they involve various costs such as printing, mailing, lost checks, wrong addresses, etc. Payment automation increases efficiency as the number of payments processed per FTE (“full time employee”) can be considerably higher. Additionally, the speed in which electronic payments can be processed presents greater opportunities to take advantage of early payment discounts that may not be accessible with the more lengthy process of a check payment.
- Higher level of accuracy – ePayments offer a much higher level of accuracy as to the actual dollar amounts being paid, thereby reducing the number of late payments, overpayments, duplicate payments, errors and discrepancies. ePayments also offer greater precision as to the timing of the actual payment, giving both buyers and suppliers a better idea of cash inflows and outflows. For example, paying via ACH or wire transfer involves a standard timeframe by which the payment is delivered; while if paying via card, suppliers are paid immediately and the buying organization pays on a regular billing cycle.
- Improved visibility for all stakeholders – Automation introduces a much higher level of visibility into the AP process, and into the payment process specifically. ePayments provide much more detail as to the status of the payment (if it has been scheduled, when it will be made, etc.), better capabilities around reporting, and improved access to vital payment data. Once armed with the right level of visibility into invoice and payment data, AP is in a position to collaborate with the treasury department and support their cash management strategies.
- Better cash management – Automation and the data that can be gathered, analyzed and shared improves an organization’s visibility into cash positions. This valuable information can enable more accurate forecasts of cash flows and can improve an enterprise’s ability to implement more sophisticated cash management strategies. With the right information, treasury can be more flexible in making decisions to pay invoices early, take more discounts, or extend payment terms by utilizing third-party financing instruments (e.g., trade finance), which results in the most optimal use of working capital.
For more on this topic click here, to access a report completed by Ardent Partners on behalf of U.S. Bank. The above is a sample of what is included in the report, which also discusses the evolution of electronic payments, current market research on B2B payments and some recommended strategies and approaches for AP and finance teams seeking to unlock greater value from their payment initiatives.
