Fraud

Checks Ceding Ground to Electronic Payments

Companies are slowly converting check payments into wire-transfer, ACH-debit and purchasing-card transactions.
Vincent RyanNovember 19, 2013

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.)

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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.