check payments Archives

2020 was such an unexpected year. Even if you saw the pandemic coming, I doubt anyone would have guessed in March that we’d still be talking about it in 2021. Or grasped how much it would change pretty much everything. With that mindset, it almost seems ironic to make predictions. Still, some clear trends in B2B payments have emerged from the year’s events and are likely to unfold in the next twelve months. These are some of the trends that I see taking the driver’s seat in payment automation this year:

Checks Payments are Losing their Luster

The payment automation business case has largely focused on cost savings and AP efficiency. COVID-19 and remote work bolstered that business case—for safety purposes, many companies still hesitate to send employees to the office to cut checks. But what we’re hearing even more is that their suppliers don’t want to receive checks, and they’re asking buyers to start making payments by ACH. With suppliers adopting digital payments at a more significant rate, it feels like we’ve reached the tipping point where checks are becoming obsolete on a broader scale.

ACH Pain Hits Home

As organizations pay more suppliers by ACH credit, they realize the true cost of ACH payments and the risks around them. At $.25-.50 per transaction, ACH looks cheap, but when you consider the time, expense, and liability of supplier enablement, the real cost ends somewhere between $1.40 and $3.79—similar to what it costs to process a check. And that doesn’t include the cost of fraud prevention. ACH payment fraud is on the rise—particularly Vendor Email Compromise (VEC) schemes, where scammers pose as vendors and convince AP teams to send ACHs to fraudulent bank accounts.

Most enterprises have mature controls around check processes, and banks offer controls via Positive Pay and Positive Payee. However, those controls don’t always exist for ACH, and banks often struggle to offer fraud protection for this payment type simply because check fraud was the main focus for so long. But now ACH fraud is rising, and the risk is greater than with checks because the ACH payment process is worlds faster. It’s almost impossible to recover stolen funds if you don’t recognize the problem before the funds reach the bad actors. All these challenges are likely to push more organizations toward outsourcing their payment process to alleviate their overworked teams.

Digital Transformation Ripple Effects

We’re likely to see businesses sorting through some ripple effects in 2021. Organizations had to move forward urgently, and there wasn’t time to plan for some of the changes that would normally take time to implement.

There may also be impacts on external stakeholders. I think we’ll see similar ripple effects from rapid, tactical digitization across departments and industries. That will lead to a second, more strategic wave of transformation and automation with solution providers addressing emerging needs.

Electronic Data Speeds AR Processes

One of the hidden reasons checks held onto their popularity for so long is that they’re easy for AR to reconcile. The funds and data appear simultaneously, with the remittance data right on the check stub. From there, AR knows exactly how to apply the funds against their invoices. If they have a lockbox service with their bank, they don’t even have to key in the check details.

Until recently, that simplicity didn’t translate to ACH payments. AP staff would see ACH deposits in their account, but they wouldn’t necessarily be told how to apply them, because the data didn’t travel with the payment. NACHA (National Automated Clearing House Association) and the RTP (Real-Time Payments) network have improved ACH remittance data transfer. Although the number of fields and characters are limited, it’s a big step in the right direction.

Digitization Unlocks Supply Chain Financing

When it comes to supply chain financing, the U.S. is behind the times when compared to Europe, which has had electronic invoicing in place for a while. There’s a massive opportunity in the U.S. to create more fluidity and working capital for suppliers and buyers alike by using data to accomplish a faster and more dynamic kind of underwriting.

Smarter systems with access to the whole data stream—from PO issuing to payment transacting—can support pre-approved discount and financing options. This wasn’t possible in a paper-based environment, but we’ll see more of these offerings as businesses digitize their data.

A Transactional Social Network for Business

It’s becoming old-fashioned to think of buyers and suppliers—and AP and AR—as separate and independent organizations. Every AP team has a corresponding AR team. All companies are both buyers and suppliers. By looking at all connections between them, you start to see the huge social network of finance professionals behind the constant exchange of funds, POs, invoices, contracts, and other documents. However, for all the highly sensitive data, businesses are not equipped to handle these as securely as they should.

Some financial companies are using the B2B social networking concept to build proto versions of a “Facebook for Business” into their product. Still, we have yet to see any with broader functionality or mass adoption.

Whether a collection of technology firms share their vast network, or a single company creates and markets the right solution, the market is ready for a new business standard. Somebody is going to create a platform that brings businesses out of the virtual Dark Age and into a Renaissance—and it will be very successful when they do.

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Josh Cyphers is the President of Nvoicepay, a FLEETCOR Company. For the past 20 years, Josh has managed successful growth for a variety of companies, from start-ups to Fortune 100 companies. Prior to Nvoicepay, Josh held leadership roles at Microsoft, Nike, Fiserv, and several growth-stage technology companies. Josh is a lapsed CPA and has a BS in Economics from Eastern Oregon University.

If your company makes payments, I’m willing to bet you’ve at least Googled cost-effective ways to simplify the process. Perhaps you’re an enterprise making hundreds of payments a day. Or maybe you’re a small- to mid-sized business looking to ease the manual burden on your small-but-plucky AP team.

One of the biggest arguments against checks is that they’re just plain old, invented to support even older banking processes. Of course, the term “old” is relative, so what does it mean when we’re talking about check history? You might be surprised.

Checks used to make a lot of sense

Checks developed alongside banks, with the concept for payment withdrawals based on recorded instruction appearing in history as early as 300 B.C. in India or Rome, depending on who you ask. Paper-based checks made their debut in the Netherlands in the 1500s, and took root in North America about a century before the Declaration of Independence was signed. The oldest surviving checkbook in the U.S. dates back to the late 1700s—and the register even has a notation for a check made out to Alexander Hamilton for legal services.

So, yes, checks are old.

What started as a safe and strategic way to transfer money—one that protected merchants’ safety and livelihoods—ingrained itself in business dealings for hundreds of years. It’s challenging to phase out something like that entirely, even if checks are difficult to adapt to today’s electronic processes.

Hanging onto the past

Each business that holds onto its check process has a reason. Perhaps their AP team’s veteran employees are more comfortable with the familiarity of checks. They may wish to preserve business relationships with suppliers that prefer checks. Some businesses are very likely interested in switching to electronic processes because check payments are expensive—but they hold back due to the perceived process upheaval.

These concerns aren’t unfounded. They’re built upon years—and generations—of business experience. So while plenty of news outlets claim that checks will phase out “soon,” we should more realistically expect that they’ll be incorporated into—not eradicated from—modern business practices. At least for now.

Time for a change

While banks have made efforts to simplify the payee’s ability to cash checks electronically, only a few have attempted to tackle the time-consuming issues that their customers face. They also lack ways to incorporate outdated check processes with the newer ACH and credit card processes their customers are also expected to support.

If checks are here to stay, do companies need to resign themselves to endless signature hunts, letter-stuffing parties, and post office visits? No. Checks have the spectacular ability to evolve as modern needs arise. After all, the first printed checks in the U.S. didn’t have the standardized MICR format that we use today.

Change happens slowly and in easily digestible segments. So although checks aren’t going away any time soon, they’re overdue for another evolution.

A middle ground exists, where business owners can upgrade their processes without causing major supplier or employee upset. Payment automation solutions have been growing in recognition for over a decade. The most successful providers have acknowledged the gray area with checks and incorporated them into their simplified electronic payment workflows. These alternatives reduce AP workloads without forcing suppliers to accept payment types that don’t work for them.

Checks have come a long way since their conceptual days, and their flexibility means we probably won’t see the last of them anytime soon. We are, however, in the midst of their shift into the electronic world, and AP teams are all the happier for it.

Are you interested in the history of wire payments? Check out this article.

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Alyssa Callahan is the Content Strategist at Nvoicepay, a FLEETCOR company. She has five years of experience in the B2B payment industry, specializing in cross-border B2B payment processes.

What is Happening in the B2B Payment World in 2021?

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