B2B Payments

AFP Survey: Firms Taking A Slow, But Steady, B2B Path

By: Eileen Goode (@eileengoode)

When businesses are paying each other, checks remain the dominant vehicle, representing on average nearly half of all B2B payments. Their primacy, however, is slipping. In 2004, 81 percent of payments were made by check, but by 2013 the rate had fallen by almost 30 percentage points, new research shows.
Indeed, online B2B payment methods are gaining ground, particularly as technology makes it easier and cheaper to exploit their myriad advantages.

Still, practitioners continue to face a multitude of barriers when attempting to adapt to new electronic payment trends, according to Diane Quinn, managing director and global large corporate sales executive at J.P. Morgan Treasury Services, which underwrote the “The 2013 AFP Electronic Payments Survey” report for the Association for Financial Professionals.

Checks remain the most universally understood method of payment, making them most popular among both suppliers and consumers. Checks also have become easier to convert into an electronic form, allowing them to remain useful even in a shifting market. “Practitioners who overcome these challenges and break through the status quo of limited electronic-payment adoption are well positioned to achieve renewed growth, improved fraud control and efficiency gains,” Quinn said in a statement.

Market shift

The B2B payments market also is shifting, the research data suggest. A key finding in the survey of 450 financial-services professionals polled in fall 2013 is an accelerated pull toward a commercial-payments market that is conducted and managed electronically. That shift is particularly evident in large companies with more than $1 billion in annual revenue, most of which now use checks for less than half of their B2B payments. Small and midsize enterprises continue to rely on checks, as 60 percent of their transactions are still based on paper.

However, even as check use remains prevalent, businesses are starting to wean themselves off of paper by converting them into electronic payments, As such, wire transfers are rising at a slower rate, while automated clearinghouse (ACH)-based transactions are on the rise, particularly among companies that work exclusively in the United States, the report notes. That’s because newer technology, such as check imaging, is making conversion of paper checks into ACH debits simpler.

Despite a dip in domestic adoption, wire transfers remain the primary payment method among international organizations making cross-border payments in multiple currencies.

Conversion Hurdles Remain

Though the study identified growing financial-sector enthusiasm for electronic payments, specifically for the speed and efficiency they have the potential to add to the market, it also highlighted the many challenges organizations face.

The main difficulty is convincing vendors to adopt electronic payments. Among the survey participants, nearly three-quarters, or 32 percent, had faced difficulties convincing their suppliers to accept e-payments, while 81 percent noted customers disinterested in paying electronically.

Difficulties with integration and implementation also remain. Among the survey respondents, 66 percent said their electronic payment and accounting systems were not integrated, while 71 percent acknowledged lacking a standard format for remittance information. Moreover, only 30 percent of respondents claimed to have IT capacity sufficient to fully implementing electronic payment systems.

Moving Forward

Today, only 11 percent of companies polled are using mobile imaging to accept payments, though AFP survey respondents expect the percentage to triple to about one-third within the next three years.
A diminished role for check-based payments also may be foreshadowed by the 47 percent of survey respondents who expressed concern that checks’ popularity in the U.S. may be making American businesses less competitive internationally.

But for expansion to really take hold, the electronic payments process itself likely will have to become more streamlined. For example, the study revealed a strong interest in easier straight-through processing (STP), particularly as it relates to ACH payments. Among respondents, 99 percent would like to see remittance information and payments sent together electronically. Currently, 74 percent of businesses send remittance data in a separate email, turning STP into a time consuming manual process.


Featured PYMNTS Study: 

With eyes on lowering costs to improving cash flow, 85 percent of U.S. firms plan to make real-time payments integral to their operations within three years. However, some firms still feel technical barriers stand in the way. In the January 2020 Making Real-Time Payments A Reality Study, PYMNTS surveyed more than 500 financial executives to examine what it will take to channel RTP interest into real-world adoption. Here’s what we learned.

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