Every year, Ardent Partners publishes several benchmark studies into the accounts payable (“AP”) marketplace. One of those is the annual research effort into the state of business-to-business (“B2B”) payments, called “The State of B2B Payments 2015: Emerging Business Value” this year, which Ardent is proud to announce is now available. The report captures the perspectives, experience, and accomplishments of more than 200 AP and finance leaders, as well as examining the trends affecting the marketplace and offering recommendations for improvement. The full report is available for download here.
Automating supplier payments has three major benefits for the AP organization in particular and the enterprise at large. The most significant is more efficient and streamlined processing (see “AP’s Top ePayment Benefits – Efficient Processing” for more), which 52% of AP managers noted as the top benefit in Ardent’s B2B Payments 2015 study. Second in line, but only by a percentage point, is cost savings at 51% (see “AP’s Top ePayment Benefits – Cost Savings”); and rounding out the top three is increased accuracy and control of payment delivery (22%), which is the subject of today’s article.
Accuracy and Precision: The Built-In Strength of ePayments
Besides being more prone to fraud, one of the most persistent errors in paper checks is a susceptibility to under- or overpayment. With the manual verification process that many enterprises use when paying with checks, it is very easy to make a mistake and send a check for the wrong amount to the supplier. This impugns the supplier relationship because it causes more work for both the buyer and supplier; in the case of overpayment, the supplier needs to return the check for it to be redone, and the buyer needs to cut a second check in the case of underpayment. This takes more time on the buyer side, and delays correct payment on the supplier side.
This can be a significant accuracy problem and, if it happens often enough, the supplier may offer much less favorable contract terms next time or stop doing business with the buying organization all together in the more extreme cases. Moreover, when paying with paper checks, the buyer does not have any idea whether the supplier actually received payment until the supplier deposits the check into their bank account.
Electronic payment methods, on the other hand, allow for precise payment accuracy as well as precision scheduling. With many ePayment methods, buyers have automated systems that double-check the payment amount against multiple digital documents to ensure over- or underpayment does not occur. Buyers can also precisely schedule when to make the payment instead of depending on a slow-moving postal system.
This precision scheduling provides AP with much tighter control over days payable outstanding (“DPO”) by allowing the AP team to schedule the delivery of the supplier payment down to the minute in some cases. Electronic payment methods also provide comparatively instant notification that payment funds have settled in the supplier’s account—one to two days instead of the potentially one- to two-week lag in mailing a paper check—which helps with supplier relationship management.
This increased accuracy and precision also has the side effect of providing, ironically, a more consistent “paper trail” than paper checks. Every payment is tracked and information stored about it, so the internal audit team can easily reconcile supplier payments at the end of the accounting period. Overall, increased accuracy and precision ends up simplifying supplier payments enormously, which can only be a good thing in the long term.
Final Thoughts
Paper checks have retained a significant portion of supplier payments primarily because they are familiar to business professionals in the developed world. This is not, however, a good reason for paper checks to retain 37% of supplier payments in 2015. Electronic payments offer significant benefits to the enterprise, including streamlined processing, extensive cost savings, and much improved accuracy and control over payment delivery. These three benefits, taken together, make a compelling argument for a transition to ePayments. AP leadership must take up the gauntlet in their organizations to convince executives of these advantages and find a way to gain the budget necessary to make payment automation happen if they wish to push AP to the “next level” of performance.
Download “The State of B2B Payments 2015: Emerging Business Value” today and find out more about how electronic payments can benefit the enterprise.
Check out these related articles for more:
B2B Payments 2015: AP’s Top ePayment Benefits — Cost Savings
B2B Payments 2015: AP’s Top ePayment Benefits — Efficient Processing
B2B Payments 2015: Why Supplier Enablement Programs Matter
B2B Payments 2015: The Top Barriers to ePayment Adoption
B2B Payments 2015: How Can Treasury Benefit from Electronic Payments?
B2B Payments 2015: How do ePayments Impact DPO?
B2B Payments 2015: The Top 3 Payment Challenges Facing Accounts Payable
B2B Payments 2015: The Importance of Payment Visibility
Ardent’s Chief Research Officer Discusses New “State of B2B Payments 2015” Report (Video)
B2B Payments 2015: The Emerging Business Value of Electronic Payments
Ardent’s “The State of B2B Payments 2015: Emerging Business Value” is Now Available
