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8BENEFITS OF MOVING YOUR COMPANY TO ELECTRONIC PAYMENTS

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The 2016 Electronic Payments Survey, underwritten by J.P. Morgan, states that more than 60 percent of finance professionals are optimistic about the impact of faster payments on their organizations. Nevertheless, when it comes to B2B payments, it may come as a surprise that more than half of U.S. companies surveyed still cling to writing paper checks while their counterparts in industrialized nations made the switch to electronic payments years ago. Granted, this rate is down from the 81 percent of B2B payments by paper check reported to AFP in 2004, 74 percent in 2007, and 50 percent in 2010, and yet the most up-to-date, comprehensive AFP Electronic Payments Survey showed an up-tick in reliance on checks— from 50 percent reported in the 2014 AFP survey to 51 percent in the 2016 AFP survey.

Cutting a check is ten times more costly to companies than making

electronic payments. According to multiple industry studies, high cost is the principal reason companies have made the transition, or are making the transition, away from the old-fashioned check ledger and toward electronic payments. Businesses estimated their cost to issue a paper check ranged from $1 to $26 with an average cost of $5.91 per check. Bank of America provides another estimate that a business check can cost between $4 and $20, while the Aberdeen Group reports $7.78 as the average cost of a check payment. In fact, a simple Internet search can reveal a check cost calculator, by which companies can see the actual costs associated with their check payments.

What follows is a concise rundown of the top eight benefits gained by sending or receiving electronic payments (ACH, cards, wires), according to expert analysis of survey reports for AFP’s most recent Electronic Payments Survey.

Few things are both as costly and enduring as the reluctance American companies feel toward

going paperless with their business-to-business (B2B) payments. In May 2016, the Research

Department of the Association for Financial Professionals (AFP) sent a 35-question survey to

corporate practitioner members and prospects regarding the benefits gained by sending and

receiving electronic payments. The survey generated a total of 412 responses.

Cutting a check is 10 times more costly to companies than making electronic payments.

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1 COST SAVINGS Because many companies are choosing to simplify payments and optimize the financial supply chain process by moving to electronic payments, “cost savings” was the top benefit cited by the majority of the 2016 AFP survey respondents (51 percent) using electronic payments.

Paper checks are not only old-fashioned, but come at a tremendous cost to a company’s bottom line. A March 2014 article in The Wall Street Journal also cited the Bank of America estimate that a single business check can cost anywhere from $4 to $20 once the time and costs of writing, mailing, collecting, and reconciling the check are all accounted for.

Also, according to the AFP survey, 69 percent of companies that still pay their vendors and suppliers by paper check cite lack of integration between their electronic payments and accounting systems as the primary reason for not weaning their businesses from checks (despite the proven cost benefits of moving to electronic payments). Small businesses often have different reasons for sticking with checks—mainly to avoid the processing fees required for them to accept credit cards. According to a survey by payments software developer Intuit Inc. of Mountain View, California, 55 percent of the 27 million small businesses in the United States do not accept credit cards. Micro-

merchants such as lawn maintenance companies, craft shops, and auto detail companies often don’t have the volume of business to merit investing in credit card acceptance.

For large organizations—those with annual revenue of at least $1 billion—the inverse is true. Large organizations are far less likely than smaller ones to use checks for a larger share (more than 80 percent) of their payments: 11 percent versus 22 percent. In a typical organization with annual revenue of at least $1 billion, 45 percent of B2B payments are made by check compared to 60 percent of payments at smaller organizations.

Bank of America estimates that a single business check can cost

anywhere from $4 to $20 once the time and costs of writing,

mailing, collecting, and reconciling the check are all accounted for.

Payments by paper check

are declining with B2B

organizations

81% in 2004

74% in 2007

50% in 2010

2004 ‘05 ‘06 ‘07 ‘08 ‘09 ‘10

20%

40%

0%

60%

80%

100%

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2 SPEED OF SETTLEMENT Nearly half of finance professionals surveyed by the AFP—48 percent—reported that “speed of settlement” is an important benefit gained by sending or receiving electronic payments in lieu of remittance and collection by check. Speed of settlement is considered a greater advantage by smaller organizations (annual revenue of less than $1 billion) and those with fewer B2B monthly payments.

As more attention has been put on the Automated Clearing House (ACH) to make its electronic network for financial transactions faster and cheaper, ACH is moving toward nearly real-time payments. Banks typically process ACH payments first, speeding up the settlement time for businesses that are paid by ACH as opposed to paper checks. ACH transactions can only be disputed for three reasons: 1) It was not the exact amount authorized; 2) It was processed earlier than the authorization date; 3) It was not authorized at all.

Credit card payments also facilitate quicker access to funds and carry the added benefit of incorporating virtual card numbers (VCNs) and other technologies to improve productivity, streamline the payment process, and improve reporting and bottom-line savings.

Automating payment processes means that your company, as well as your vendors and suppliers, will be paid more promptly, efficiently, and with a minimum of the kind of disputes that can lead to settlement delays

3 IMPROVED CASH FORECASTING At the most basic level, cash flow forecasting helps businesses survive. While there is no crystal ball for forecasting, the best way to banish guesswork from a cash-flow forecast is to introduce predictability into the payment process. A company that embraces electronic payments—ACH, credit cards, wires, etc.—makes it easier and quicker for their clients to pay them on time, leading to greater accuracy in their cash forecasting.

Forty-six percent of organizations surveyed by the AFP listed “improved cash forecasting” as a major benefit of sending or receiving electronic payments. Faster payments where settlement times are well known and not dependent on mail service make cash forecasting easier.

In the article “5 Best Practices to Improve Your Cash Flow,” Sandy Bruhn, senior vice president and treasury management

Automating payment processes means that your company will be paid more promptly, efficiently, and with a minimum of the kind of disputes that can lead to settlement delays.

48% INCREASED SPEED

OF SETTLEMENT

46% IMPROVED CASH

FORECASTING

36% MORE EFFICIENT RECONCILIATION

Benefits of Electronic Payments

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sales manager at Johnson Bank, recommends paying electronically when you can in order to reduce expense and control the settlement date. “The average cost of a manual payment—mailing a check out—is about $18. When you initiate an ACH payment, the total cost is about $2 to $3. Electronic payments are not only faster and cheaper, they’re also more secure. Also, electronic payments allow you to control the timing, so you can pay on the due date and maximize your use of credit.”

Many companies offer a discount for early payment or electronic payments such as wire or ACH. These types of payments cost the recipients less to process, and savings are passed on to the customer or client. With the regularity and speed of settlement electronic payments provide, a company can quickly improve its cash flow pipeline and the accuracy of its forecasting.

In essence, enhancing cash forecasting positions a company to improve operational efficiency, better manage costs of capital, mitigate operational and financial risks, and improve shareholder value.

4 MORE EFFICIENT RECONCILIATION Thirty-six percent of AFP survey respondents cited “more efficient reconciliation” as a benefit of transitioning from checks to electronic payments.

According to PCWorld, payment processing integration allows for payment transaction data derived from credit/debit cards or other electronic payments to flow automatically into a business’s accounting or ERP system when a transaction is made. It does away with the need to manually enter payment transaction data and reconcile

The average cost of a manual payment—mailing a

check out—is about $18. When you initiate an ACH

payment, the total cost is about $2 to $3. Electronic

payments are not only faster and cheaper, they’re also

more secure. Also, electronic payments allow you to

control the timing, so you can pay on the due date

and maximize your use of credit.

Mailing a check = $18

Initiating ACH Payment = $2 to $3

faster

cheaper

more secure

slower

costlier

fraud risk

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accounts, saving valuable time and reducing labor cost as well as the possibility of human error. With payment processing integration, the data for each transaction seamlessly posts into the accounting software, similar to how the money from a transaction is deposited directly into a business bank account.

A full 94 percent of financial professionals responding to the most recent AFP survey cited as important that faster payments are “smart” or can carry extensive remittance information, but payment standards continue to be an open issue. “When it comes to more efficient reconciliation,” cites the 2016 AFP Electronic Payments Survey, “organizations traditionally have issues with limited and unstructured remittance information that follows the electronic payment. Remittance information is often obtained through a portal or sent by email, which makes the reconciliation process more complex and time-consuming. However, these issues are well known and are being addressed in the ongoing

initiatives for improving the payments landscape.”

In The Drive to Electronic Remittance Exchange in Business-to-Business Payment Automation, CGI Group points to two traditional models for reconciling payment-related information with payment transactions. In the first model, remittances are sent simultaneously with payment transactions. Regarding the first model, CGI Group calls out the absence of sufficient data on the associated invoices and deduction details accompanying electronic transactions. In the second model, “additional information resides outside of the standardized payments message. The remittance advice is delivered to the beneficiary via a different channel, and businesses must re-associate the remittance data with the payment.”

CGI Group also assesses the significant risk of separate delivery: “The risk of separate delivery is that it requires time-consuming and error prone re-keying and manual intervention, which can cause confusion and potential loss of information. Although variations of both models exist

worldwide, the general consensus is that businesses prefer to receive remittance information with the payment to more efficiently manage their payables and receivables processes.”

To truly improve reconciliation practices, the importance of automating your payables cannot be overstated. Integrated payables solutions such as WEX’s Integrated Payables simplify the reconciliation process and allow for exactly the kind of smart remittance information that companies value. WEX Integrated Payables leverages the Paygenus Payment Network and provides a seamless way to process payments, regardless of payment type. The bank agnostic platform is designed to provide complete transparency and accountability for all supplier payments, including virtual account, ACH, and check. Within the Integrated Payables web portal, customers have complete visibility over the payment and reconciliation process through a centralized interface – which streamlines your payment process and improves invoice reconciliation.

CHECK FRAUD IS CURRENTLY ON THE RISE:

75% of organizations surveyed by AFP experienced check fraud in 2016. This is an increase from 71% in 2015.

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5 FRAUD CONTROL Paper checks are not only expensive, they also provide ample opportunity for fraud. The results of the 2017 AFP Payments Fraud and Control Survey underscore that paper checks are still the most popular and dominant payment form targeted in incidents of payment fraud against businesses.

It should come as no surprise then that 35 percent of respondents to the 2016 AFP Electronic Payments Survey cited “fraud control” as one of the top benefits of sending or receiving electronic payments.

Unfortunately, check fraud is currently on the rise: 75 percent of organizations surveyed by AFP experienced check fraud in 2016. This is an increase from 71 percent in 2015 and a reversal of the declining trend in check fraud since 2010. Another possible reason for the increase in payments fraud via check could be business email compromise (BEC) scams that target checks to some extent.

The reality that overall payments fraud is currently at its highest level is disconcerting. This remarkable trend reversal signals that organizations cannot be complacent

about the threats of payments fraud; it also provides hard statistical evidence that relying on paper checks for B2B payments makes an organization particularly vulnerable to fraud.

Nevertheless, all organizations can certainly be targets of fraud and it is imperative for businesses to take the necessary steps to make it as difficult as possible for criminals to succeed in their attacks. A good place to start is phasing out paper check remittance, especially for B2B payments.

Wire transfers are also vulnerable, according to the AFP survey: “In 2016, wire transfers were the second most-often targeted payment method attacked by fraudsters. Forty-six percent of corporate practitioners whose organizations had experienced attempted or actual payments fraud report that such attacks were via wire transfers. This is similar to the 48 percent of finance professionals who reported wire transfer fraud in 2015, but a significant increase from the 27 percent and 14 percent who reported wire transfer fraud in 2014 and 2013, respectively.”

94% FASTER PAYMENTS

35% FRAUD CONTROL

Benefits of Electronic Payments

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As evidenced by the level of fraud in wire transfers and BEC, moving toward electronic payments alone is not enough to protect businesses from criminal behavior. Nevertheless, checks have been and continue to be the payment method most often exposed to fraud activity. Also, according to the 2017 AFP Payments Fraud and Control Survey, “59 percent of organizations that experienced check fraud in 2016 suffered between one and five incidents; 15 percent were subject to between six and 10 incidents and 16 were exposed to 21 or more instances.

“Larger organizations with annual revenue of at least $1 billion were far more likely than other companies to have been victims of check fraud. Thirty-one percent of survey respondents from this group report their organizations experienced check fraud more than 15 times in 2016.

“Over two-thirds (68 percent) of finance professionals report that the number of check fraud attempts at their organizations was unchanged from that in 2015, while 20 percent report an increase.”

6 BETTER SUPPLIER / CUSTOMER RELATIONS Another one of the many benefits of moving your company toward electronic payments is better supplier/customer relations. Thirty-five percent of respondents to the 2016 AFP Electronic Payments Survey cited “better supplier/customer relations” as a benefit gained by sending or receiving electronic payments.

A recent Gallup report, “Guide to Customer Centricity: Analytics and Advice for B2B Leaders,” revealed that companies are engaging only 29 percent of their B2B customers. Researchers suggest that the remaining 71 percent are either indifferent toward the business partner in question or actively disengaged. Corporate leaders are asking what they need to do to differentiate and become a truly first-rate partner with a loyal and engaged customer base.

According to the WEX Corporate article “Supplier Relationships Believed Central to B2B Customer Engagement,” optimizing supplier payments is essential to ensure winning B2B customer relations across industries. And ease of electronic payments is key to enhancing and optimizing these relationships.

35% BETTER SUPPLIER/

CUSTOMER RELATIONS

33% STRAIGHT-THROUGH

PROCESSING TO AP OR AR

Benefits of Electronic Payments

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According to David Hill of American Express Global Business Consulting in his article, “Procurement’s Role in Maximizing Value via Supplier Payments,” a company’s payment process can make a significant impact on supplier relationships and the value each partner realizes on the back end. Hill states, “Beyond negotiating a payment term, payments were often viewed as a cost of doing business.” He then described procurement’s changing role as “guardians of supplier relationships and responsible for total cost of ownership.”

Hill claims that adopting a strategic B2B supplier payments strategy creates a win-win for both parties, noting that suppliers can benefit from cash acceleration, reduced days sales outstanding (DSO), enhanced visibility and cash forecasting, process efficiencies from automation, and even contract extensions by participating in the payment program.

7 STRAIGHT-THROUGH PROCESSING TO AP OR AR Thirty-three percent of respondents to the 2016 AFP Electronic Payments Survey listed “straight-through processing to AP or AR” as a benefit gained by sending or receiving electronic payments.

FIS, a global leader in financial services technology and a Fortune 500 company, agrees that there is an increased trend toward the convergence of accounts payable (AP) and accounts receivable (AR). In its receivables and payments white paper, Traveling on the Same Path: The Convergence of AP and AR, FIS outlines the historical imperative of managing AP and AR discretely; it also explains how new technologies and systems practices are creating the trend

toward convergence of these once separate processes.

“The responsibilities of both AP and AR teams are becoming wider than in the past,” claims FIS. “On the one hand, AR teams are increasingly required to deal with electronic payments—particularly as more suppliers are pushing to make business-to-business payments using corporate cards in order to take advantage of attractive rebate arrangements. Meanwhile, suppliers are increasingly being asked to take on some of the AP responsibilities previously handled by their large corporate customers—for example, by inputting invoices directly into their customers’ portals.”

As a result, FIS argues, “AR teams are gaining greater exposure to electronic payments, mobile payments, and buy-side portals—so it makes sense to align these teams more closely with AP in order to share knowledge and benefit the whole organization.”

Whether a company is sending or receiving an invoice, there is clearly much to be gained by using electronic processes to achieve straight-through processing to AP or AR.

8 WORKING CAPITAL IMPROVEMENT According to The Hackett Group’s 2017 US Working Capital Survey, “The working capital performance of US companies didn’t shift dramatically in 2016, but the changes that occurred are always notable as an economic barometer. Once again, companies left more than $1 trillion ($1,014 billion) in working capital on the table and ignored a proven opportunity to increase profits by as much as 20 percent.”

% %

Checks have been

and continue to be

the payment method

most often exposed

to fraud activity.

2016 PERCENT ORGANIZATIONS REPORTED

6 TO 10 INCIDENTS

21+ INCIDENTS

1 TO 5 INCIDENTS59%

15%

16%

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As companies reap the benefits of electronic payments, factors like speed of settlement, improved cash forecasting, and more efficient reconciliation all contribute toward freeing up working capital. In fact, 24 percent of organizations recently surveyed by AFP cite “working capital improvement” as a benefit of sending or receiving electronic payments.

CONCLUSION Whether a company is still considering a move from manual processes toward

electronic payments, or has already started making the transition, one adage holds true: the future is electronic.

“One question a survey cannot answer is what practitioners should do to advance the movement from paper to electronic,” states the AFP. “Breaking through may require a multi-year business case that looks at cost and resource efficiencies, forecasting goals, information management, and fraud exposure, to name a few.

“A primary aspect to consider is aligning the company vision for electronic

payment adoption to its overall strategic goals. The strongest case will bring together the vision and approach of the company’s treasury and technology resources, along with the input of their banking partners, to capitalize on electronic payment trends.”

A frictionless way to move your company toward electronic payment integration often starts with an experienced, consultative payment technology provider like WEX. WEX Payment Solutions help companies simplify business payments and optimize the financial supply chain

IN 2016, OVER $1 TRILLION OF WORKING CAPITAL IGNORED

By using electronic payments, your company has the potential to increase profits by 20%

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process by moving to electronic payments. Advantages of WEX Payment Solutions include simplified payments, increased spending controls, enhanced visibility, streamlined procurement, cost reduction, and enhanced supplier relationships.

Regardless of the size or complexity of your business, WEX Payment Solutions provide a powerful electronic payment network for buyers and suppliers, helping companies reduce cost, mitigate risk, streamline processes, and generate revenue by optimizing the payables process and moving to electronic payments.

At some point, American businesses will have to join the rest of the industrialized world and transition entirely to electronic payments. The costs, inefficiencies, and risks associated with paper checks have faced increased regulatory scrutiny in the United States during the past several years and the paper check may face more regulation in the near future.

On September 10, 2013, the Federal Reserve issued a Payment System Improvement—Public Consultation Paper. The Fed underscored that “although check writing is expected

to continue to decline, the Reserve Banks believe that more aggressive actions may be needed to accelerate the transition to ubiquitous electronic payment alternatives.”

If the future is truly electronic, wouldn’t you like to get there before the competition?

ABOUT THE PAYGENUS PAYMENT NEWORKPaygenus is a powerful B2B payment network, designed by and for financial institutions, that connects buyers and suppliers

delivering simplified payment execution. Paygenus ensures maximum buyer and supplier engagement by delivering a

standardized approach to payment processing, cost savings and improved cash flow, and a balanced approach across the

financial supply chain. Harnessing the power of this B2B community, comprised of hundreds of thousands of members,

Paygenus optimizes the full spectrum of the buyer/supplier relationship. The Paygenus Payment Network powers electronic

payment solutions that help companies improve spend management, mitigate risk and achieve bottom line profitability.

Whether a company is still considering a move from manual processes toward electronic payments, or has already started making the transition, one adage holds true: the future is electronic.

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