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Mary Schaeffer

The Corporate Payment Revolution Is Here

Are you taking advantage of it?

August 2, 2007
by Mary Schaeffer

Do you pay your bills the same way today as you did five or 10 years ago? Most consumers don’t. Many take advantage of debit cards and online bill payment services. In fact, more Americans than ever do not have checks to accompany their checking accounts — or if they did receive checks, they haven’t a clue where to find their checkbooks.

The Corporate Payment Issue

The change on the corporate side is even starker, driven by such factors as:

  • The high cost of producing a check, which some experts estimate to be as high as $50. Does it really make sense to pay a $25 bill with a check?

  • The continued driving focus on reducing costs and hence, headcount.

  • Check fraud and bank’s reluctance to eat losses associated with it.

  • The recognition that technology can be used to improve productivity in the payment process.

  • The comfort with new payment technologies afforded decision makers who have used some of the online consumer payment products.

Payment Tools

At the same time, the introduction of new payment products makes it easier for executives to design payment processes that eliminate some of the traditional problems associated with checks while enhancing the productivity — and sometimes profitability — of their payment processes. Specifically, the products they are starting to use include:

  • Purchase card (p-cards), to initially handle small dollar transactions and then as the volume grows, to take advantage of rebates available to larger programs.

  • Automated Clearing House (ACH) credits to replace costly checks and even costlier wire transfers.

  • ACH debits to introduce productivity in areas where there is a captive relationship.

Do these tools mean the demise of the paper check? Not likely, but it does mean that executives now have some choices when it comes to how they pay their bills. It also means they can devise an integrated program that takes advantage of the benefits of each of the tools without giving up the strong internal controls and fraud deterrents they have worked so hard to develop.

Additional Benefits

Using these tools allow corporate finance managers to get their bills paid on a more timely basis. While money out the door quicker may not be everyone’s idea of a process improvement, it is if you can earn a lucrative early payment discount. While the 2/10 net 30 (the equivalent of a 36 percent rate of return) is not available from all suppliers, a number do still offer it. And when they don’t, even one-quarter of that is a decent return.

A few suppliers offer small discounts to their customers who pay them electronically. By figuring out where you can earn early payment discounts, which vendors will provide a small pricing discount if paid electronically and which vendors you can switch to p-cards (in order to earn a rebate), you can squeeze some additional funding out of your payment process. Just don’t forget about those all-important controls or you’ll end up giving back your savings in the form of duplicate payments!

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Mary S. Schaeffer is the author of a dozen business books including the just-published New Payment World. She serves as the editorial director of Accounts Payable Now & Tomorrow, a payment newsletter and leads that organization’s accounts payable consulting endeavors. She writes a free ezine for professionals interested in payment issues which can be signed up for at www.ap-now.com/ezinesignup.html.