Amid the rollout of Same Day ACH — in the midst of several other faster, digital payments initiatives and in a market where B2B payments seem to finally be getting smarter — the AFP's latest research finding an uptick in corporate use of paper checks leads to one question: What the heck is going on?
The AFP's manager of treasury and payments, Magnus Carlsson, helps PYMNTS clear the air.
Check Use Up
Two revelations emerged from the Association for Financial Professionals' 2016 Electronic Payments Survey. First is that use of paper checks by corporates increased, reversing the downward trend of check popularity seen in surveys past. The second is that the 1 percent increase in check use once again bumped the payment rail to the most popular payment method for corporates at 51 percent.
"That really got me as a big surprise," Carlsson said. "Given everything that we hear and talk about, all of these efforts to go away from paper checks, yet we see they're very resilient. That makes me think we have to talk a bit about how we approach this topic. You can't just say, 'You should get away from checks.'"
Indeed, it appears as if the research — from AFP and others — that highlights the cost and lack of security associated with paper checks hasn't deterred businesses.
That research, Carlsson argued, should mean companies can build a business case to ditch checks and adopt electronic payments, making the survey's results that much more surprising.
It's unclear, though, whether that 1 percent increase for 2016, up from 2013, signals a trend of rising check use or whether it's simply an anomaly for this particular report. But considering the electronic payments initiatives underway, the AFP executive said he's fairly certain the next time the report comes out, in 2019, there will again be a decline in check usage — though he can't say for sure.
The release of AFP's report earlier this month coincided with the launch of Same Day ACH, which begs consideration of whether the electronic payment efforts initiated by players like TCH, SWIFT and NACHA are in vain.
But the report uncovered some reasons why companies are reluctant to adopt electronic payments, with the cost of investing in that change standing as the top barrier, according to the survey.
"This is really what it comes down to, why we're still seeing a lot of checks," Carlsson stated, adding another crucial part of the puzzle: With all of the faster payments initiatives in the works right now, some businesses say it may not make sense to invest in the shift to electronic payments now when better, faster solutions are ahead.
"Some of the corporates I've talked to say that they have such antiquated systems to handle checks that even starting to mess with it is going to lead to huge investment costs," he explained. "It's a wait-and-see approach; they don't want to get into a big investment right now knowing there are faster alternatives on the horizon."
"There is less incentive to change at this point, I think," he added.
Same Day ACH
True, there are faster payments initiatives in the works, but Same Day ACH is finally here, and the AFP did find evidence that corporates are planning to use it.
The most common ways to use Same Day ACH for businesses are likely to be for last-minute bill payments and emergency payroll, the survey found, though Carlsson noted the research was conducted before Same Day ACH's actual rollout, so it remains to be seen exactly how it will be used by businesses.
Carlsson said the faster payments tool offers businesses an alternative to wire transfers, which he said is traditionally used for emergency payments. And there is a possibility that Same Day ACH could infiltrate the supplier payment process, especially when it offers the opportunity to save money.
"If you have a supplier saying you can pay quickly [using Same Day ACH], maybe you can get a discount from that," he explained. "If you have to pay a little extra, maybe the discount you get back is worth it."
What is certain, however, is that companies need to be prepared for the impact on cash flow Same Day ACH is likely to have, Carlsson said, noting that he's had extensive discussions with corporates about the ability for businesses to get money in faster than anticipated.
Even if they don't use Same Day ACH, if they're on the receiving end of a payment, that faster transaction means a change in how corporations manage the books.
"It's a good precaution to know this, so you're prepared, so if you get cash in quicker that you know where to part it," Carlsson stated.
"Check with business partners how they may pay you," he offered as advice. "If a business partner is really intent on using Same Day ACH, well, then, you need to be prepared for that."