B2B electronic payments are performed in a variety of ways. Historically paper checks were the most common method used between enterprises. More recently, businesses are moving more and more to a form of Electronic Funds Transfer (EFT), such as Automated Clearing House (ACH) transactions, wire transfers or commercial card payments. Each of these methods — check, ACH, wire and commercial card — involve a variety of aspects to consider. There is payment float, effort required, the cost of the payment, the set-up, the maintenance, the risk, and the payment details for accounting purposes.
Many enterprises misunderstand check float strategies and the value it has (and will continue to have) in enterprise cash conversions. Due to increased efficiencies in processing, float has been reduced by at least a factor of 5 in the last decade. And most of the time, the cost savings from paying electronically exceeds the monetary benefit you would get from check float methodologies at today’s interest rates.
For almost 700 years, businesses have written paper checks, and the direct cost of writing these checks is enormous. These costs include supplies (paper, costly MICR ink, invoicing, envelopes), postage costs, labor costs, fraud costs, the cost of exception handling for checks you cannot find, and various potential bank fees for manual check processing. Other decision making criteria to keep in mind about checks; Manual record keeping systems require you to update any change in payee information, such as a change of address. And, from a risk perspective, there is always the security risk of a check being intercepted by the wrong hands. Given that these checks contain sensitive banking information and financial information, this type of theft leaves you vulnerable in a number of ways. The only information normally received when the check is cashed is the check number and the amount of the check, and this information must be manually matched to the invoice – another manual step in a manual process. The National Automated Clearing House Association (NACHA) estimates the actual, accurate cost of manually processing a paper check is around 7-8 dollars, which adds up to an amazing amount of inefficient corporate waste. The resources saved from switching from a manual check process to straight-through-processing would empower untold amounts of other projects, while having a positive impact on cash flow, profits, and customer satisfaction.
In the new era, new forms of digital B2B payments will begin to take hold, as the old paradigms are no longer valid for efficient business. What does it mean to deal with a credit card when there is no physical card? How can transactions be risk managed when payment credentials and metadata are masked and securely scrambled by design?
Globys can help you navigate every issue with your digital transformation, so that you have an optimized straight-through-processing.