A 7 percent increase in four years is hardly what you would call lightning-fast innovation, but companies are gradually giving up paper checks and making more of their disbursements and collections via electronic means.

The typical company now makes about 50 percent of its business-to-business payments using some method other than paper check, up from 43 percent in 2010 and 36 percent in 2007, according to the 2013 payments survey by the Association for Financial Professionals.

A vast majority of the 484 organizations that responded to AFP’s survey, conducted in September, still use checks heavily, more than any other kind of payment instrument. The average company surveyed, for example, still writes a check 43 percent of the time when transacting with major suppliers. (Click here for chart.)

But businesses of all sizes are turning increasingly to electronic methods. For example, 82 percent of organizations use wire transfers to pay at least some of their major suppliers. Similarly, 81 percent use automated clearinghouse (ACH) credits, 50 percent use purchasing cards, 34 percent use ACH debits and 13 percent use single-use accounts, according to the AFP survey. (A single-use account is a virtual card account deployed for one transaction and set to a specific credit limit and valid date range.)

How do companies receive money from their major business customers? Forty-two percent of all payments are made by check. But business customers also use a wide range of electronic methods: 81 percent of organizations receive some payments from major customers via ACH credits, 75 percent collect via wire transfers, 22 percent are paid through ACH debits, 20 percent get payments through purchasing cards and 6 percent are paid via a single-use account.

Electronic payments cut processing costs and improve cash forecasting and fraud control, according to the AFP survey respondents, but there are barriers to adoption. Five different obstacles to adopting electronic payments were cited by at least two-thirds of the cash managers, directors, analysts and assistant treasurers surveyed: difficulty in convincing customers to pay electronically; difficulty in convincing suppliers to accept electronic payments; shortage of IT resources for implementation; no standard format for remittance information; and lack of integration between electronic payment and accounting systems.

As with many aspects of business, larger businesses have the edge in shifting from paper to electronic payments, AFP said in its report on the survey. “Larger companies are in a better negotiating position when convincing busi­ness partners to make the shift from paper to electronic methods,” the report said, and “Larger organizations have better access to resources, such as IT, to make necessary investments in modern, electronic payment systems facilitating straight-through processing, etc.”

Still, treasury personnel of all-size companies have high hopes for conversion to electronic instruments and other payment innovations in the next three years.

Almost half of survey respondents said their organizations will convert the majority of their B2B payments to major suppliers to electronic methods within the next three years.

In addition, many organizations are planning to expand their use of mobile payment tools, the AFP found. Only 11 percent of companies initiate payments via mobile platforms currently, but 32 percent expect to do so over the next three years, for example. Likewise, only 10 percent of organizations accept mobile payments from customers, but 30 percent expect to add that capability in the next three years.

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5 responses to “Checks Ceding Ground to Electronic Payments”

  1. I work as a small business consultant and I found this article rather interesting. With the current economic climate some of the smaller companies or even start-ups can’t even get a business bank account to change from paper to electronic.

    When working with small businesses, I try to find for them alternatives that could help them get the best possible solution. Since the economic turmoil I have been increasingly recommending to small business owners to go prepaid. There are a vast amount of companies out there now such as Cashplus who offer business bank accounts in a prepaid card form.

    Having this alternative will give small businesses some foot to stand on – whilst the bigger firms can simply switch electronic.

    Thanks

    Jeff

  2. I was interested in the article but now even more intrigued by the comments.

    As a Treasurer, former banker and consultant, and part owner of a very small business (revenue about $10,000 annually) myself, I have neither personally experienced nor witnessed issues getting business accounts for even the smallest of businesses. That is, of course, unless the businesses (or its principals) were shady, illegal, or otherwise disreputable.

    Our business had a business checking account within 15 minutes of walking into our branch (with the proper documentation, including articles and EIN) and was sending and receiving ACH payments and sending online invoices within a week. I would say half of the revenue is received by electronic payment and maybe 80% of expenses paid similarly.

    The company for which I am Treasurer is a large one (multi-billion) and we are struggling far more to convert to electronic payments (both incoming and outgoing). We receive less than 50% of incoming payments electronically, despite a nifty online invoicing/payment system, and outgoing is even less. Until we start financially penalizing incoming and outgoing paper checks, I think change will be frustratingly slow going. Doing so for outgoing payments makes more sense than incoming though. I have a theoretical problem with making it harder, even if just perception, for a customer to pay you.

  3. Kevin,
    I agree it has been more complicated to move midsize and enterprise companies to electronic payments, but that has changed drastically. Until recently banks have been the traditional payment partner, but they are not likely to be the most effective, least costly, or easiest to do business with for payments. I help clients outsource payments with little effort and a huge return in rebates. I’ll be glad to point you in the right direction without a fee.
    Good luck.
    Jim

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