<p><b>Throbbing Pain from the Paper Factory</b></p>
<p>While talked about for years, eliminating paper checks still seems like a dream for financial professionals in today''s corporations. The benefits of electronic payments are large and well understood; yet, statistics show that corporations are still almost exclusively reliant on traditional paper checks for most payments.</p>
<p>Of course, corporations have departed from checks for payroll, with direct deposits being standard for most organizations. Though many were hesitant at first, most employees today appreciate the benefits of receiving funds quickly and conveniently. Few would ever want to go back to the old days of handling and manually depositing paper checks.</p>
<p>With the successes that companies have enjoyed in payroll direct deposit, few have made the association that similar processes could be of equal or greater benefit to Accounts Payable (A/P). Despite processing inefficiencies and ever-rising print and mail costs, corporations continue to live with the pain caused by their internal paper factory, churning out paper checks to pay vendors, service providers and other payees.</p>
<p>Fearing the unknowns associated with change, most corporations continue to suffer through legacy payment processes and procedures that, while burdensome, offer a tried and true comfort zone. They live with their paper factories, enduring production equipment seizures and maintenance and accept as given the expenses of operational staff, resources and supplies.</p>
<p>Adding to the pain are security concerns that many companies realize, but rarely protect themselves against. Fraudulent use of the printing process to embezzle company funds, theft of pre-printed company check stock and other criminal or fraudulent activities most often begin within the company, not outside of it.</p>
<p><b>A Formidable Barrier</b></p>
<p>Recognizing all the benefits, why haven''t more companies looked for electronic solutions for A/P payments? The main barrier rests on the payee side of the equation, not on the payer side. While corporations have the ability today to send ACH (Automated Clearing House) payments through their banks, payees have generally rejected this option because they literally don''t know what they are being paid for! With a paper check, a payee can refer to line item details printed on the check stub to know exactly what the payment is for. Given the same payment as an ACH deposit, payees have no information to reconcile payments with invoices. With the general absence of remittance detail, the majority of payees have rejected electronic payment schemes and continue to demand traditional paper-based payments.</p>
<p>Highlighting the current state of affairs, a recent study conducted by The Clearing House, the nation''s first and largest bank clearing house, found the current business transaction and payment environment is fraught with inefficiency and complexity making progress slow. Additional points cited in the study include:</p>
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<li>According to a recent study by the Federal Reserve Bank, 3.9 billion business-to-business remittance payments are generated in the United States on an annual basis, with 86% of those payments made with paper checks.</li>
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<li>Only 14% of business-to-business payments are electronic.</li>
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<li>Across industries, 32% of electronic payments cannot be applied electronically.</li>
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<p>While primary resistance to electronic payments owes to a lack of remittance detail, a 2002 Gartner Group study still underscores the desire for change from the payment status quo. Reaffirming that 86% of all B2B payments are currently issued by paper check, also brought forward was the fact that only 11% of those companies surveyed found paper checks to be an efficient form of payment.</p>
<p><b>The Dam is About to Break!</b></p>
<p>Though the challenge appears significant, fractures are appearing in the dam holding back electronic payments that may soon burst it wide open! Various forces are aligning to finally break down the traditional barriers that have hampered wide-spread adoption of ACH payments for Accounts Payable disbursements:</p>
<ul>
<li>Heightened interest in company performance. Corporations have never been more concerned about the bottom line, looking for every opportunity to reduce costs and improve profit margins. The time is right to address clear areas of opportunity found in the high costs of printing and mailing paper checks. Reconciling payments faster and reducing payment disputes can also significantly impact costs.</li>
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<li>Passage of Check 21 (Check Truncation Act for the 21st Century). With the recent passage of Check 21, banks are scrambling to transition their paper-based operations to image-based transactions. This transition is having a natural and coincident effect on corporations, heightening interest in transitioning their own paper-based processes.</li>
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<li>Concern over fraud. While reducing costs, electronic payments can offer a significant opportunity to eliminate check fraud for those companies considered at risk.</li>
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<p><b>Finally, the Technology is Here!</b></p>
<p>While market forces have aligned to enhance interest in electronic A/P payments, a new and innovative technology is emerging to make the transition possible. Best described as Total Payment Management Solutions, systems are now available that offer required flexibility to payers, while overcoming the typical objections of payees.</p>
<p>A fully realized Total Payment Management Solution should provide:</p>
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<li>ACH payment preparation. The solution prepares a NACHA-compliant file ready to send through the bank to pay trading partners electronically.</li>
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<li>Delivery of remittance details. Overcoming this primary obstacle, new solutions are providing fully detailed and electronically transmitted remittance advices to accompany all ACH payments. The best solutions go a step further and provide remittance information in payee-specified electronic formats to allow remittance data to be imported directly into Accounts Receivable systems, avoiding the re-keying time and eliminating the errors often introduced with manual entry of remittance details.</li>
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<li>Bank independent. Emerging solutions should allow corporations to leverage their existing bank relationships.</li>
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<li>Fast implementation. Emerging solutions should not require capital investments or redesign of current accounting systems; instead, they should take data from existing systems and process payments as required, making it possible to see a savings with the very first A/P run.</li>
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<li>Rapid payee enrollment. Any ePayment solution''s success is dependent on ready payee adoption. A Total Payment Management Solution should provide an automated, online enrollment process, making it fast and easy for payees to enroll and begin receiving electronic payments and remittance information immediately.</li>
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<li>Automated reconciliation. As electronic payments begin to flow, the Total Payment Management Solution must provide reports back to payers on cleared payments, allowing for rapid and automated reconciliation processes.</li>
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<li>Transaction archive. A Total Payment Management Solution should provide a secure, online archive of payment transactions, allowing both payers and payees access to transactions to quickly resolve disputes.</li>
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<li>Payment options. Recognizing that not all payees can be converted over night, a Total Payment Management Solution still must provide for traditional payment options, allowing paper checks to be printed as needed either in-house or through a third party print and mail service.</li>
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<p><b>No Need to Wait</b></p>
<p>The environment is right. The technology is ready. There is no reason for corporations to wait any longer to begin dismantling their burdensome paper factories! For payers, significant benefits can be gained, through large cost reductions and improved efficiencies. For payees, the new approach will improve operations, speeding payment reconciliation while reducing paper handling and security risks. With so much to be gained on both sides of the transaction equation, the time is right for corporate payers to begin the inevitable transition to electronic A/P payments.</p>
<p><!--Daniel Brown--></p>
