What would it take for your organization to give up the paper payment habit? Or at least cut it back a little? That’s the message from Aberdeen Group’s third annual payments report titled “Global Payments: Maximizing Cash Flow with Electronic Payments and Process Automation”. The study was jointly underwritten by Sage Payment Solutions and Syncada, a joint venture between Visa and US Bank.

According to Nasreen Quibria, senior analyst at Boston-based Aberdeen, businesses that adopt electronic payment channels have been able to achieve a 16 percent decrease in accounts receivable (AR) processing costs and a 14 percent decrease in accounts payable (AP) costs year over year. Given recession-driven mandates to reduce costs and preserve cash during the past 2 years, you might think that this alone would be a compelling incentive.

In a different study, the largest U.S. companies, according to REL Research, saw working capital performance deteriorate by over 8 percent in 2009, the largest decline in more than 5 years. These companies now have up to $740 billion in cash unnecessarily tied up in working capital, which can be freed up by improving their operations in collections, payables, and inventory management. Furthermore, REL found that top-performing companies collected from customers 17 days more quickly than typical companies in 2009.



One culprit is paper-based payment processing. Paper is definitely cumbersome and inefficient, but it works — and companies resist changing. The advantages of electronic payment are attracting best-in-class companies.

Most U.S. companies, however, still make the bulk of their disbursements by paper check (70 percent), according to Aberdeen. So, what is preventing companies from jumping on the electronic payments bandwagon?

Simple inertia, suggests Quibria. Another is lack of resources for IT and finance to implement electronic methods and processes. In other cases, it is the lack of interest or support by the company’s suppliers and trading partners. All parties in the transaction need to participate electronically, or the anticipated efficiencies won’t materialize.

Efficiency gains from automating the financial supply chain – from invoicing through payment settlement – are key motivators for demand and supply to rally around electronic payments, Quibria notes. According to Aberdeen, 50 percent of best-in-class companies integrate their electronic payment process with their accounting, enterprise resource planning (ERP), or other financial systems.

Using days to process a single payment as the yardstick, Aberdeen found that best-in-class companies performed the task in 4.6 days. The industry average was 9.2 days, while laggards took 15.9 days.

Of Aberdeen survey respondents, 64 percent cited increased efficiency through the removal of paper-based and manual payment processes, and 51 percent cited cost savings as the prime value derived. Others cited improved cash forecasting (32 percent), the ability to optimize working capital (22 percent), and the reduction in days sales outstanding (20 percent).

There are a variety of electronic payment methods a company can use. Aberdeen suggests creating an electronic payment mix appropriate to your situation. The main options include wire transfer, automated clearing house (ACH), and commercial payment cards.

Vendors like Sage can get you started. Most commercial banks, such as US Bank or Wells Fargo, can do the same. ###