No business goes into a new year with the intention of falling behind the competition. But that’s what will happen to businesses in 2018 that don’t have a plan for migrating to electronic payments.
After years of false starts, electronic payments will gain the upper hand on paper checks in 2018.
Forty-seven percent of all payments are now made electronically, and businesses are paying 46 percent of their suppliers electronically, the Institute of Finance and Management (IOFM) reports.
Automated Clearing House (ACH) transactions represent nearly 33 percent of all payments to suppliers while wire transfer accounts for nine percent of payments, per IOFM. Virtual credit cards represent five percent of all payments to suppliers – a huge increase compared to just a few years ago when cards were primarily used for small-dollar purchases and business travel expenses.
And electronic payments are gaining momentum. IOFM reports that electronic payments are the top automation priority for accounts payable leaders in 2018. In fact, more than one-third of senior finance executives surveyed by IOFM say their business plans to deploy electronic payments within the next 12 months. And 92 percent of businesses have a “high” or “moderate” level of interest in increasing the volume of payments that they make electronically, per the Remittance Coalition.
Within three years, most businesses expect to make most of their supplier payments electronically.
Delaying electronic payment initiatives any longer will have serious consequences to your business.
Businesses that have adopted electronic payments are gaining four competitive advantages:
- Increased profit margins: Electronic payments increase profit margins by eliminating the costly manual tasks of initiating, reconciling, and reporting on supplier payments, collecting and maintaining supplier bank information, and responding to supplier inquiries. With electronic payments, businesses wipe out many of the costs associated with paper checks, including paper, envelopes, and postage. A single payment file initiates payment to all your suppliers, regardless of how they prefer to be paid. And payments are reconciled in real-time with your ERP, eliminating the need for staff to rekey data or decode banking messages.
- Working capital improvements: The speed of electronic payments compared to paper checks opens the door for businesses to capture more early-payment discounts. Businesses can also earn incremental revenue based on spending with a virtual card. In some cases, the revenue earned by businesses have made their accounts payables department a revenue center, or at least generated funds that can be invested in accounts payable automation. And electronic payments are a proven conduit to increasing Days Payables Outstanding (DPO).
- Reduced fraud and compliance risk: Fraud and compliance violations can have a big impact on your bottom line. The visibility and controls that come with electronic payments result in businesses reporting one-tenth the number of fraud losses with electronic payments compared to paper checks. Electronic payments solutions safeguard sensitive data by complying with the Payment Card Industry Data Security Standard (PCI DSS). PCI DSS outlines stringent requirements for safeguarding sensitive data, improving control over the posting process, and enabling detailed oversight and reporting. Automatic checking of Office of Foreign Assets Control (OFAC) helps identify suspicious transactions. And tracking of how much each supplier is paid automates reporting for state and federal tax agencies.
- Better supplier relationships: Attracting and retaining top suppliers is vital to your supply chain and competitive position. Electronic payments solutions notify your suppliers of pending payments and the transaction details. With the visibility provided by an electronic payments solution, suppliers no longer need to call or e-mail you regarding payment status to manage their cash flow. Suppliers also can access their payment history online 24/7.
Each of these benefits is a compelling reason to migrate to electronic payments.
Together, they can provide your business with a competitive advantage for 2018.
If you want to learn more about how you can improve your current AP process with electronic payments, watch the webinar: How to Bring Order to the AP Automation Playground.