In September 2013, the Association for Financial Professionals (AFP), parent of gtnews, conducted a survey of its US corporate practitioner members on the barriers to their payment methods, and received 484 responses. The
2013 AFP Electronic Payments Survey
, underwritten by JP Morgan, found that about 50% of US treasury and finance professionals still use cheques for B2B payments. Cheque usage is clearly declining; the respective figures were 54% in 2010 and 74% in 2007, but there is still a long way to go before paper is truly phased out of the system.
“B2B is still the toughest area in which to gain traction for electronic payments [e-payments],” said Anita Patterson, CTP, director of treasury services for Cox Enterprises, during an AFP webinar on the survey.
“Frankly, I was pleasantly surprised that 50% of B2B payments are being made electronically. Not surprisingly, the largest companies – those that have at least US$1bn or more in revenue – use cheques for a smaller share of their B2B payments than do the smaller companies. The larger companies use cheques for about 40% of their payments, whereas the smaller companies use cheques for about 63% of their payments.”
Simply put, cheques work for smaller US companies. They are not complicated, and many companies do not see a reason to change.
Readiness for Transition
That is not to say that corporates are not very interested in moving to e-payments. One in five survey respondents said they make the majority of their payments electronically. Moreover, 48% of survey respondents said their organisations are likely to convert a majority of B2B payments made to major suppliers from cheques to e-payments over the next three years.
Additionally, many corporates do see the pitfalls in relying on paper cheques for the long haul. In an AFP webinar poll, about 47% of members said that they believe US businesses might be missing out on international trade due to their relatively high use of cheques.
One key barrier to automated clearing house (ACH) payments is a lack of straight-through processing (STP), which is actually easier to achieve with paper cheques. With ACH, remittance information is an issue. Fully 74% of US businesses send remittance information via email, separate from the actual payment, making STP more of a manual process. “A lockbox is actually a more efficient method,” noted Magnus Carlsson, AFP’s manager of treasury and payments.
In an AFP webinar poll, nearly all members (99%) said that the ability to send all remittance information along with the payment itself would be beneficial. Surmounting this hurdle could be a game changer for many organisations.
Lastly, many US treasury and finance professionals find the process of electronification cumbersome and costly. One thing that might help in this regard is an open directory that contains basic e-payment information (bank ID, account numbers, etc.). With such a guide in place, nearly 44% of respondents to an AFP webinar poll said they would be more likely to switch from cheques to e-payments.
Many US corporates are certainly aware of the benefits of converting to e-payments. Fifty-seven per cent of survey respondents cited cost savings as a top benefit of making the transition. Additionally, improved cash forecasting (46%), fraud control (39%) and more efficient reconciliation (37%) were also named as key reasons for switching to e-payments.
However, while many companies might want to stick with what is familiar, corporates can build a business case to move on from cheques. A prime example is
the New York City Finance Department
, which won AFP’s 2013 Pinnacle Award Grand Prize for developing e-payments functionality responsible for collecting US$49bn of receipts generated by 29m payments from 36 individual agencies.
From Carlsson’s perspective, corporates must begin making that business case, which he views as the key for a major shift to happen. “Whether the business case is based on the enhanced efficiency of new technology, or based on higher cost for legacy payment methods makes no real difference – a business case is a must,” he said.
Europe’s opening banking regulation is finally here. After months of preparation across the continent, the Revised Payment Services Directive comes into effect on January 13.
The revised Payment Services Directive regulation, regarded as one of the most disruptive in Europe’s financial services sector, will begin to make an impact on January 13, 2018.
This year promises to further the regulatory compliance burden imposed on financial institutions. How are firms in the sector responding to the challenge?
A 'digital treasury ecosystem', where the CFO or treasurer makes real-time financial decisions on their tablets, is not far beyond the reach of currently available technology. In such an ecosystem, there is no direct reliance on banking partners or the company’s broader organisation - just an executive and an interactive dashboard powered by interconnected digital technologies, writes Eric Cohen, PwC.