Blog | October 31, 2019 | by Dan Andrew

Why Are We Still in the Paper Chase When It Comes to Payables? [White Paper]

In an increasingly digitized and automated world, eliminating paper from business processes has been a major initiative for most companies. With a globalized economy and supply chain, this initiative becomes even more important. The Internet has made the decline of paper easier. Emails have replaced letters and faxes. Most documents are kept on servers rather than in file cabinets. Yet when it comes to the AP department, paper is often still an enormous burden.

We know that automating the payables process reduces fraud, eliminates double payments, increases efficiencies, reduces costs, and provides full visibility into a company’s spend.

So why do so many organizations still pay their suppliers with paper checks or cash?

That is the focus of the Payables Friction Playbook: Why Firms Are Ready for an AP Upgrade. This white paper from PYMNTS, in collaboration with Corcentric, details the findings from a survey of AP professionals from 2,570 firms across twelve industries. The results are both surprising and disappointing to those of us who recognize the numerous benefits an organization can realize when it digitizes its financial processes.

Inefficiency by the numbers

Many of the responses to the survey are counterintuitive. You might assume that larger companies, those that receive a large number of invoices monthly, would be the most likely to use electronic payment methods to pay suppliers. The numbers show the opposite is true.

  • 7% of companies that have revenues of $100M to $500M pay their suppliers by paper check while 70.5% of companies that have revenues of less than $10M do the same.
  • Overall, an average of 80.8% of all companies surveyed pay their suppliers by paper check; yet only 63.5% express satisfaction with this method.
  • Although ACH is commonly used as a payment method by larger organizations, it still runs second to paper checks.
  • Even more surprising, 63.8% of organizations whose average invoice is less than $55 amazingly still pay suppliers in cash.

That last point is actually shocking when one considers the need for accurate spend reporting. Too many companies consider small, decentralized one-off payments to have minimal impact on the bottom line. Yet, these small purchases add up to significant numbers, especially for larger firms with multiple locations.

Suppliers definitely do not prefer paper

When suppliers are asked for their preferred method of payment, paper checks fall to sixth place, behind ACH, digital wallets, debit cards, and virtual cards (P-cards). In fact, virtual cards are the second most popular method for payment, only surpassed by same-day ACH payments. Just slightly over 14 percent of suppliers want to be paid with paper checks yet as we noted above, over 80 percent of firms still use that method. Suppliers would prefer not to be at the mercy of the postal service, nor do they want to spend time manually depositing checks and waiting for payment to be approved.

Customers should also look at the inefficiency of paper checks by considering the cost of paper and postage and the delays that could occur after mailing the check. Electronic payment also increases the accuracy of month-end reconciliation since payments can be tracked.

Looking towards the future

While the survey reveals that legacy payments still prevail, the desire for change and AP transformation already exists. When asked what innovations they hope to implement, respondents to the PYMNTS survey indicated overall that e-invoicing was their first choice (56.9 percent) followed by automatic order matching (43.8 percent). What is encouraging is that even firms that receive a smaller number of invoices consider e-invoicing their first innovation choice (51.6 percent).

What keeps companies married to old methods varies. Often, it is simply a matter of inertia. When things seem to be operating, why make changes? In fact, there are overwhelmingly positive benefits for organization that digitize. When AP professionals and executives understand that, change begin to occur in larger and larger numbers.

To learn more about how payables automation can boost your bottom line, visit Corcentric’s website.