Businesses Still Using Checks

In October 2004, Association for Financial Professionals conducted its 2004 Electronic Payments Survey. AFP wanted to know how the situation had changed since its 2000 survey, Electronic Payments Initiatives and the Internet. AFP asked its members about the barriers to increased use of electronic payments and solutions that would make e-payments more efficient and cost-effective for their organizations.

Business use of the U.S. payments system is at a crossroads. Although the volume of electronic payments by consumers is growing rapidly nationwide, more than 80% of business-to business payments continue to be made by paper check.

Most business-to-business (B2B) payments continue to be made by paper check, according to financial professionals participating in the 2004 AFP Electronic Payments Survey. Still, electronic payments are gaining ground among some organizations, especially those with annual revenues greater than $1 billion. These organizations are more likely to have integrated their accounts payable (A/P) and accounts receivable (A/R) systems with their electronic payment systems.

A number of barriers appear to work together to obstruct progress toward the wider adoption of electronic payments in B2B transactions. These include a shortage of IT resources, A/P and A/R systems that are not integrated with electronic payment systems, a lack of a single standard format for remittance information, and trading partners who cannot send or receive electronic payments with sufficient remittance information. It is therefore difficult for organizations to make a business case for implementing systems changes that would make use of electronic payments more efficient or even feasible.

However, organizations are more willing to migrate from checks to electronic payments today than they were four years ago. Twenty-eight percent of respondents to this year's survey indicate that their organization is very likely to convert the majority of its B2B payments from checks to electronic payments in the next three years, compared with 9% who strongly agreed with that statement in the 2000 survey. Solutions most likely to increase an organization's use of electronic payments include: a standard format for exchanging remittance information with electronic payments, A/P and A/R software that integrates with electronic payments, bank services that provide straight-through processing of electronic payments into accounting systems, and improved fraud control over ACH payments.

Current Payments Practices

* Most business-to-business (B2B) payments continue to be made by check.

* Organizations with annual revenues greater than $1 billion make significantly fewer check payments than smaller organizations, and receive fewer check payments as well.

* Organizations are more likely to use electronic payments for collections and disbursements to their major suppliers and customers as opposed to their other suppliers and customers.

* At two-thirds of organizations, the treasury department plays at least some role in selecting payment methods for disbursements and collections.

* In only about 30 percent of organizations is treasury the sole decision-maker. That authority is most often shared with the controller.

Growth Prospects for B2B Electronic Payments

Organizations appear to be more willing to migrate from checks to electronic payments today than they were four years ago. This is especially the case at large organizations.

* Twenty-eight percent of respondents indicate that their organization is very likely to convert the majority of its B2B payments from checks to electronic payments in the next three years.

* Twenty-two percent of respondents say their organization is not at all likely to convert the majority of payments to electronic in the next three years.

Integration between Electronic Payments and Accounting Systems

* Forty-five percent of financial professionals report that their organization has integrated its A/P and/or A/R system with its electronic payments system. Large organizations are more likely to have done so.

* Thirty-eight percent of organizations have integrated their A/P systems with electronic payments compared with 27% for A/R systems.

* The primary reason for integrating systems - cited by the largest percentage of respondents (45%) - was to achieve more efficient posting and reconciliation.

Barriers to Electronic Payments

Many barriers work together to obstruct progress toward the wider adoption of electronic payments in B2B transactions. At organizations that have not yet integrated either their A/P or A/R systems with their electronic payment systems, over half of respondents consider the lack of integration to be a major barrier to increasing use of electronic payments.

The four major barriers are:

1. Shortage of IT resources;

2. Accounting systems that are not integrated with electronic payment systems;

3. The lack of a single standard format for remittance information;

4. Trading partners who cannot send or receive electronic payments with sufficient remittance information.