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Electronic Payments in AP: Giving Rise to New Profitability

Cheryl Girling February 27, 2017

As the economy continues to see signs of vitality, companies will shift their focus from survival, towards becoming stronger and more competitive. Finance managers and professionals are helping lead the charge towards building leaner companies, by drilling deep into the operations of companies to find new ways to improve efficiencies and achieve competitive advantages. One of the most significant trends in recent years has been the move from paper to electronic payments. This trend continues to gather momentum as forward-thinking financial executives in small and medium-sized businesses realize its tremendous potential – not only for cost savings but also for achieving a variety of important strategic benefits. These include stronger fraud controls, improved cash management, and better relationships with vendors. With new developments in the electronic payments landscape, many companies are actually shifting their accounts payable departments from being traditional cost centers towards becoming new revenue centers.

However, in spite of the benefits and the availability of electronic payment solutions, approximately 70% of U.S. companies still issue checks for payments. Why? The main reason is that businesses continue to face challenges before making the decision to convert to electronic.

Why focus on accounts payable? After all, that area of operations certainly hasn’t been the first place that managers have looked to when striving for innovation. However, because AP processes are often costly and inefficient, making improvements in that area can have a significant impact on the bottom line. With the shift in business culture resulting from a tough economic climate, businesses are trying to squeeze more efficiency out of every single department.


What are the factors driving the move towards electronic payments in AP?

Cost savings

For businesses, writing paper checks is costly and wasteful. In a thorough analysis – factoring in items such as printing, postage, bank fees, the administrative costs of reconciliation and all the touch points in handling the paper – the real cost of each paper check hovers between $2.00 and $6.00 per check. By contrast, an electronic solution brings the cost-per-payment down to an estimated 25 cents or lower. There’s a growing realization in the industry that “if you’re using paper to pay, your business is paying and paying and paying.”

Improved Cash Management

Along with controlling costs, cash flow management is critical to the success of any organization; in this respect, electronic payments can dramatically improve cash forecasting. Converting to electronic payments means improved visibility for payments; knowing exactly when payments need to be initiated to take full advantage of discounts, and knowing exactly when payments will clear. This translates into better cash flow forecasting, allowing controllers to hold onto funds longer and make better investing and borrowing decisions.

Stronger Fraud Controls

Aside from the need for reduced costs and streamlined operations, another key factor driving the move to electronic payments is a need to reduce the risk of payment fraud and the financial losses that go along with it. According to the Association for Financial Professionals, paper checks are still the number one target for payment fraud, and are responsible for the most financial losses due to fraud. A recent AFP Payments Fraud & Control survey revealed that over 85% of organizations polled had been victims of check fraud. (Source: 2012 AFO Payments Fraud & Control Survey)

Better Vendor Relationships

With improved collaboration and smoother processes, businesses that are moving to electronic payments are finding opportunities for enhancement in vendor relationships. Reduced discrepancies and management of exceptions means streamlined relationships, and less need for staff to contact vendors on specific issues.

Best Practices

The most critical element to success is implementation. Executing a step-by-step process to onboard vendors for electronic payments is key to project success. These steps include:

Supplier Selection. Access the vendor master file and analyze the past 12 months of activity, identifying which vendors have the ability to accept electronic payment.

Supplier Marketing. Target your vendors and communicate your message via email and marketing campaigns; set start and completion dates within a 90-day period.

Profile Activation. Engage with your suppliers through a secure website to activate their payment profile.

Profile Validation. Verify that all vendor data is accurate, complete and secure. This is done by validating banking information to ensure that payments will reach the correct bank account without causing unnecessary delays.

Profile Management. Update, maintain and validate all vendor information to maintain the integrity and quality of your ERP system.

Payment and Remittance. Automate the flow of payment files and corresponding remittance data from payment creation to reconciliation. This can be done by e-mail through PDF format, or other formats preferred by the vendor.

Less Paper, More Cash

The reason behind industry excitement over these new products and services is that they resolve many of the issues that organizations have been grappling with. They feature fully-supported conversions which maximize vendor participation, seamless integration with internal processes, and put to rest any pressing security issues.

Whereas most conversion programs use either only card or only ACH payments, the combination of the two which we present achieves 75% conversion. This is also in contrast to in-house conversion programs, which allow for achievement of approximately 25% over 18 months. All of this is done while still generating revenue through card rebates and other unique programs.” The result? Moving AP departments from a traditional cost center to a management process that offers real bottom line results.

Overall, 2017 is poised to represent a key shift in the electronic payments lifecycle. This means great opportunities for businesses that have been waiting for the right time to move ahead.