By Jeff L. Hubbard – KeyBank Market President for Connecticut and Western Massachusetts
In 2014 the Wall Street Journal published an article titled, “U.S. companies cling to writing paper checks.” At the time, 50 percent of business-to-business payments were being made by check, at an average of $5.91 per check—an estimated 10 times more costly than automating payments.
Since then, the benefits of automating processes have been documented to be much greater than simply reducing cost, and the redundancy and inefficiency of paper-based practices have been reinforced. Yet checks still account for one-third of all payments, and the cost of using them continues to rise.
This leads to the question: if businesses can save money and improve the payments process by transitioning to automation, why are they still using paper?
Old habits die hard
In a survey of more than 300 corporate executives, KeyBank asked companies why they still use checks. While some respondents stated cash flow and security concerns, nearly 70 percent of the responses were due to habit or preference.
- 33 percent said checks provide greater control over cash flows;
- 30 percent said checks are an accounting department preference;
- 26 percent said checks provide a clear paper trail;
- 22 percent said checks have always been company practice and see no reason to change;
- 20 percent said suppliers don’t accept e-payments or credit cards;
- 18 percent said fraud concerns; and
- 17 percent said paper checks are easier to use.
However, just because something is comfortable or the way it’s always been done does not mean it is the way it should continue to be done. Manual data entry and poorly integrated systems are a drain on resources; the tasks associated with them can be redundant and time-consuming, plus the processes themselves are prone to error. In fact, many companies spend a disproportionate number of hours reconciling errors that automation could alleviate. The resulting delays often have a negative impact on an organization’s liquidity. The delays also cost companies the opportunity to take advantage of supplier discounts that can generate savings.
Automated payment benefits
Automation provides businesses with a competitive advantage because it simplifies the payments process and allows businesses to fully integrate all payment types—check, wire, card, Automated Clearing House—into one file. The resulting workflow helps businesses achieve the following:
- Improved efficiency. Staff will spend less time on redundant data entry, credit card verification and reconciliation.
- Increased savings. By freeing up people’s time, especially in smaller organizations where people wear multiple hats, you can dedicate their time and efforts to tasks that better support the core business functions. This often creates an opportunity to reduce payroll and/or contractor expenses.
- Enhanced operational effectiveness. Automated payment processes provide organizations with more financial transparency and better control. For example, automated data entry makes transaction details instantly visible and allows for timelier, more accurate reporting.
- Improved cash flow. When companies can better track payments, it can help reduce payment processing turnaround, which will speed up the process to post receivables and allow for improved access to discount and rebate programs.
An additional benefit of automation is that it adds an important layer of security to all transactions. For example, certified vendors are mandated to ensure that all transactions are encrypted— from magnetic stripe data to store information, personal identification numbers (PIN) and other security identifications.
Making the transition
Transitioning to automated payments can be an involved exercise, but the important thing for businesses to consider is that different solutions meet different needs. To successfully implement an integrated payment process, the business must identify what its particular needs are by fully exploring the major issues with its current process. For example, are employees overextended by manual operations? Is the cost of payment processing becoming prohibitive? Are funds not readily available? Are reporting systems unreliable? Are payments difficult to reconcile? Businesses should also consider future needs, such as mobile payments, when reviewing payment processing features.
Businesses should also review where their highest transaction volumes are coming from and focus on integrating these areas first. Also, what business applications and lines of business are most critical to integrate with payments? Accounting and sales usually top the list of priorities.
Once the business knows the problem, it can work with either its existing vendor or potential new vendors to determine the full scope of the automated payment solution. The focus should be on working with a provider who knows and understands your business’s goals, offers a wide range of treasury services and can provide an automation solution that is flexible, scalable and reliable.
Ultimately, investments in automation should increase productivity. They can and will have a significant long-term impact on the overall payment process. They can also promote added collaboration among buyers, suppliers and their financial institutions. The end result for businesses is significant: an automated payment process that makes it easier to predict, manage and maximize your organization’s working capital.
About the author: Jeff L. Hubbard is president of KeyBank’s Connecticut and Western Massachusetts market. He may be reached by phone at 203-404-6231 and his email is jeff_hubbard@keybank.com.