Business Strategy | June 19, 2016 | by Kate Freer

Reducing the Cost of B2B Payments: Waving Good-bye to Paper Checks

Paying by check is both costly and inefficient. That’s why treasury and finance professionals are turning to electronic payments, finds a new AFP survey. There are a host of reasons why companies are working to eliminate paper from their processes. That’s most notably true in the finance and treasury functions. Paper and manual processes are notoriously inefficient, prone to errors, time- and labor-intensive, and lack transparency. And last, but not least, they are too costly. Companies that have automated processes within the P2P continuum have found that, not only have they eliminated those inefficiencies and reduced costs; they’ve also given traditionally back-office departments the chance to play a strategic, revenue-producing role in the enterprise. This is happening at both the front end and back end of the transaction cycle: electronic POs, electronic invoices, and, of course, electronic payments. At the end of 2013, we posted a blog titled, “The Check Is in the Mail. Nor for Much Longer,” which discussed how electronic payments may make paper checks obsolete. That blog was based on a survey by the Association for Financial Professionals (AFP). Things definitely seem to be moving in that direction, as can be seen in AFP’s 2015 Payments Cost Benchmarking Survey, a survey that found that almost 80% of the participating organizations either had transitioned or were in the process of transitioning their B2B payments from paper checks to electronic payments. That makes a lot of sense when you consider that the estimated median cost of a paper check transaction is $3.00, according to the AFP survey. Compare that to an average cost of $0.26 and $0.50 per ACH transaction and $1.50 for a P-card transaction, also estimated by the AFP survey, and you can see why companies are moving in an inexorable path towards electronic payments. But one interesting finding in the AFP survey indicates that cost savings alone are not the reason companies are making the transition. In fact, 88% of those surveyed said that increased efficiency, not cost, would be the primary reason for eliminating paper checks in favor of electronic payments. When one considers the time spent on writing, mailing, collecting, and reconciling paper checks, it’s easy to see how much more efficient electronically transmitting payments can be. The U.S. is definitely a laggard when it comes to walking this path, however. According to a Wall Street Journal article published last year, when it comes to e-payments, Europe, Japan, and Brazil are ahead of the U.S. According to the Federal Reserve, American businesses (and consumers) wrote 21 billion checks in 2012 (yes, that’s billion) while the 28 countries in the EU wrote one-quarter that amount during that same time period, according to the European Central Bank. The new AFP survey does show that the situation has changed since last year, but it’s still ongoing. And, as the responsibilities for treasury and finance grow, as CFOs are playing a much more strategic role in all aspects of the enterprise, this move should speed up. As Jim Kaitz, President and CEO of AFP noted, “Treasury and finance departments are increasingly tasked with innovating and adapting to better serve their organizations, and moving from paper to electronic is one way to do so.” Check out the benefits of e-payments in the B2B environment.

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