Will Electronic Transactions Continue to Grow at a Fast Clip?
“SORRY – WE NO LONGER ACCEPT CHECKS.”
As you may have noticed, when you go to a local restaurant or retail store these days, it’s getting more difficult to find a place that will allow you to pay with a check. High credit and debit card usage has made it so retail check acceptance has fallen to its lowest level ever. This didn’t happen overnight, but it sure seems that way.
Companies making business–to-business payment transactions have been slower to abandon the paper check and it’s doubtful that we’ll see many “NO CHECKS ACCEPTED” policies anytime soon in this transaction space. While electronic transactions are definitely on the uptick with a growing number of electronic payment evangelists demonstrating benefits to both bottom lines and the environment, we still find paper check payments accounting for a very large share of all business transactions.
Why the slow rate of adoption?
Below are some important factors contributing to the slow adoption rate of electronic payments in the business-to-business world.
- EDI 820 Data Mapping B-to-B payments often consist of multiple invoices on a single payment. Each of those invoices needs to be identified and closed out in the receiver’s accounts receivable system. While there are ways for these remittances to travel with an electronic payment like an Automated Clearing House (ACH)—EDI 820 being the most popular example—they unfortunately require technology resources to decipher it, adding a layer of complexity. And while the remittance delivery files are meant to be standardized, individual interpretation of those standard fields often causes miscommunication when attempting the translation. This makes the concept of straight through processing a pipe dream since a standard data mapping table is not an option. Companies receiving this way must set up a custom data map for each payer to ensure they are ingesting the correct data in the correct fields.
- Decoupled Remittances In an attempt to remove the complexity and cost of sending EDI 820 remittance files, the majority of B-to-B payments are made with the payment traveling separately from the remittance. Payments are sent electronically, and remittances are sent by email to a specific email address set up by the receiving company. While this does solve the requirement to have technical resources involved in creating and setting up receipt of an electronic data file, it also creates a labor-intensive process of matching the emailed remittance with the received payment. The processing of the emailed remittance also often requires that the document received be converted to a file type compatible with the receiver’s ERP. In a worst-case scenario this can even mean keying the received emailed remittance by hand.
- Hanging on to Check Float Check float, in relation to the time value of money, is still a factor for some companies, causing them to hesitate to pay their vendors electronically. Electronic payments move fast and take the “check is in the mail” excuse off the table. This issue has become rarer with the emergence of the early-pay discount in the last few years as well as the realization that the cost of producing and mailing a paper check and remittance is significantly higher than the cost of initiating an electronic payment.
Banks and business groups continually work to make the electronic payment avenue easier to use. EDI 820 standardization committees have been formed and have delivered some solid best practices for mapping remittance data to the EDI 820 format. Unfortunately those standardization committees have no way to enforce their standards. Additionally, the definition of some of the published standards can have different interpretations that can cause confusion. Payment portals have been on the scene for quite a while and do solve the electronic payment dilemma but can cause labor intensive nightmares for their customers or vendors.
The future brings hope
When accounts receivable departments promote electronic payments, companies see faster deposits and the lowering of days sales outstanding (DSO), while going green at the same time.
Software companies like Billtrust® are using advanced technologies to bypass the problem of EDI 820 mapping and the management of decoupled remittances. At the same time, the forward-thinking companies that adopt these technology solutions are subsequently becoming more efficient and are also lowering headcount by redistributing and making better use of employee skills and talents.
The growing adoption of these time saving technologies in the months and years to come will greatly increase the growth of electronic payment transactions. Maybe we will begin to see “NO CHECKS PLEASE” sooner in the business-to-business world.