As a corporate treasurer, are you serious about electronic ePayments, or just dabbling? Do you have a programmatic approach, or are ePayments just a necessary evil of doing business with some vendors? If your answer was “necessary evil”, it's time for a change. You can do much better with the right strategy and the right ePayments solution.
Companies have been doing ePayments for a long time, but not strategically. Most got into ePayments because some of their vendors pushed them to pay by card or ACH. So, they're using the bank’s pipes to submit some ePayments. It’s a reactive approach at best. The ePayments process as a whole is not optimized.
If you haven’t optimized ePayments already, 25 percent check, 20 percent card and 55 percent ACH is a good ratio to aim for, depending on your industry. That adds up to a minimum of 75 percent ePayments.
In a company that hasn’t optimized ePayments, the typical ratio is 65 to 70 percent check, 10 percent card, and 25 percent ACH. With today’s technology, most businesses can easily flip that and get to 70 percent electronic ePayments. If you’re running a really good program, you can make it to 80 percent, or even 85 percent.
Card is the best way to pay, because the payer can get rebates from the card issuer. But, not all vendors accept cards. Those that do are charged a fee by the card issuer, between 2 to 3 percent of the transaction value.
For low margin businesses such as supermarkets or distributors, you won’t see a lot of vendors accepting card ePayments. But if you’re a treasurer in the retail or automotive sector, there are a lot of vendors who are willing to pay a small transaction fee in exchange for expedited ePayment.
ACH and EFT ePayments usually have a processing fee on both ends. The fee depends on your banking relationship, but it’s usually in the range of about 15 cents per transaction. That makes them less desirable to the buyer (fees instead of rebates) but less expensive and therefore more desirable to suppliers.
Although it would be ideal to make most of your ePayments by card, it’s difficult for most businesses to make that happen. ACH is the next best thing.
Whether treasurers are paying by card or by ACH, the main focus should be cutting down on checks. Paying by check is costly and labor intensive.
Until now, paying electronically has been too. The actual electronic money transfer is the easiest and least costly part of it. The real burden is all of the manual work that paying vendors electronically requires; managing supplier ePayment information and bank information on the front end and following up the ePayment on the back end.
Someone has to maintain every individual vendor’s ePayment preference and banking information and keep it up to date in the accounting system. It’s an overwhelming amount of work and that’s where it usually breaks down. The idea of moving to electronic ePayments is to simplify and streamline a paperbound process—however, maintaining vendor information is anything but simple and streamlined.
Up until now, the only companies that have been able to get to 75 percent or 85 percent ePayments are large enterprise organizations that can afford the AP headcount to do all the manual work of managing vendor information and following up on ePayment errors. But is that really how you want skilled people spending their time?
Fortunately, cloud technology and new payment services are making it so companies of every size can get to at least 70 percent automated ePayments with a minimum of staff. They can pay using the smartest, most cost-effective method every time, without worrying about supplier information management on the front end or chasing down errors on the back end.
”We wanted to pay our vendors electronically for a long time but the burden was on us to keep all their bank information and tell the bank how they wanted to be paid,” said Raouf Kassisieh, controller at VCC, one of the top general contractors in the United States. “I didn’t want to have responsibility for that data for security reasons.”
A ePayment solutions provider started managing the whole ePayment process for VCC a year ago. “Our ePayment provider handles vendor ePayment data and the actual ePayments from start to finish. There’s no administrative burden for us,” said Kassisieh. With the majority of ePayments now being made electronically, his team have shifted their focus to cash flow management and real-time reporting.
It may not be possible to get to 100 percent electronic ePayments, but once your program is up and running, it’s something to shoot for. You can easily get to 70 percent. There will always be some holdouts, usually smaller vendors that aren’t willing to give you their bank information. There also will always be a small percentage of ePayments that have to be made by check. However, if you’re serious about electronic ePayments, those should be the exception, not the rule.