Paper checks remain the most common method of payment by US businesses.
Half of companies in a recent survey by the Association for Financial Professionals (AFP) both receive and make payments by check more than other methods. Businesses are hesitant to accept electronic payments and have difficulty persuading customers to submit payments electronically.
The typical company receives 50% of its B2B payments by check, and wire transfers are the most common forms of payment across country borders.
AFP has surveyed finance professionals on electronic payments every three years since 2004. This year, payments by check made up 50% of overall B2B transactions, compared with 75% in 2004, 64% in 2007 and 54% in 2010.
The percentage of companies collecting more than 60% of payments by check dropped from 69% in 2004 to 35% in 2013. Smaller companies are more likely to receive a majority of their payments by check.
The most common barriers for using electronic payments are:
- Difficulty convincing customers to pay electronically (82%)
- Difficulty convincing suppliers to accept electronic payments (74%)
- Shortage of IT resources to implement electronic payments (71%)
- Lack of standard format for remittance information (70%)
- Lack of integration between electronic payment and account systems (66%)
Nearly half (48%) of companies say they plan to convert the majority of B2B payments from checks to electronic methods within the next three years.
While still prevalent, the use of paper checks is declining. The average company makes 43% of its payments to major suppliers by check, compared with 49% in 2010 and 65% in 2007. Thirty-one per cent of payments made to major suppliers are done using automated clearing house (ACH) credits, and 16% are made by wire transfer, according to the 2013 survey.
A global survey by AFP earlier this year showed that companies reported a drop in attempted or actual payments fraud, in part because the use of electronic payments has increased.
AFP surveyed 484 cash managers, directors, analysts and assistant treasurers in more than 15 industries. About half of the respondents came from companies with annual revenue between $500 million and $1 billion.
The 2013 AFP Electronic Payments Survey lists three main constraints businesses face in trying to adopt greater efficiency in payments:
- More than 70% of organisations are struggling to convert to electronic methods of payment, citing customer or supplier hesitance and IT barriers.
- Just more than 10% of companies use mobile technology to initiate payments, and 32% plan to do so in the next three years.
- Half of the companies that facilitate cross-currency payments through foreign currency accounts also rely on banking providers, which can lead to higher costs.
The most common benefits cited by finance professionals for using electronic payments are cost savings (57%), improved cash forecasting (46%), fraud control (39%) and more efficient reconciliation (37%).
Related CGMA Magazine content:
“Five Risky Areas in Mobile Banking”: Mobile banking offers convenience to consumers but also has created concerns about fraud, data security and privacy. Regulators have taken notice of the potential risks and rewards, and have offered some direction to companies and consumers.
—Neil Amato (firstname.lastname@example.org) is a CGMA Magazine senior editor.