Digitizing payments has become more important than ever as organizations look to increase working capital, create efficiencies, potentially reduce costs and minimize risk. Furthermore, the COVID-19 pandemic has pushed many businesses to adopt automation as a way to address these concerns across the broad community of suppliers, customers and partners.
3 Steps to Successfully Transition to Digital Payments
Step 1. Set Your Goals
Your goals may include:
Increasing working capital
Creating infrastructure efficiencies
Maximizing financial gains
Minimizing risk
How can you set your goals?
Analyze your current accounts payable spend.
Determine your current working capital need.
Identify your days payable outstanding (DPO) and days sales outstanding (DSO).
Identify the Industry standards in delivering efficiency in AP and AR departments.
Step 2. Set Your Plan
Your digital payment infrastructure has to serve your organization's purposes, not the other way around. And the use of checks needs to move away.
Disbursements and receivables decreased in organzation's surveyed from 70 to 80 percent in 2004 to 40 to 50 percent in 2019, according to an AFP 2020 survey.
Check remains a primary form of payment
AR vs. AP - Similar reductions in use reported
Size does matter
Major suppliers continue to be paid via checks
Supplier adoption of ePayments is on the rise
The number of ACH debit transfers (16.6 billion) exceeded the number of check payments (14.5 billion) in 2018 for the first time1
Converting B2B payments to suppliers from checks to digital payments is accelerating, according to an AFP 2020 survey2.
Roughly 60 percent reported that their organization is either very likely or somewhat likely to convert the majority of B2B payments to suppliers from checks to electronic payments
Organizations are currently primarily using electronic payments for their B2B transactions
Supplier adoption of ePayments is on the rise
Step 3. Overcome Roadblocks
When working with your suppliers and clients on transitioning to digital payments, it's best to communicate the benefits, such as timelier payments for vendors or cashless transactions for customers, straight-through processing to AP or AR:
Cost savings
Improved cash forecasting
Speed of settlement
Improved supplier/customer relations
According to an AFP 2020 survey, other benefits to sending digital payments include2:
Straight-through processing to AP or AR, and general ledger 49%
Cost savings 45%
Improved cash forecasting 42%
Speed of settlement 42%
Improved supplier/customer relations 37%
According to an AFP 2020 survey, other benefits to receiving digital payments include2:
Speed of settlement 50%
Straight-through processing to AP or AR, and general ledger 31%
Improved cash forecasting 30%
Improved matching for cash application 27%
Improved supplier/customer relations 26%
As companies have had to transition during the pandemic, with many working remotely, electronic payment methods are more convenient and allowed for payments to be made and received with minimal disruptions.
1 "The 2019 Federal Reserve Payments Study," The Federal Reserve System, January 06, 20202 "AFP 2020 SURVEY," Association For Financial Professionals, 2020
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Digitizing payments has become more important than ever as organizations look to increase working capital, create efficiencies, potentially reduce costs and minimize risk. Furthermore, the COVID-19 pandemic has pushed many businesses to adopt automation as a way to address these concerns across the broad community of suppliers, customers and partners.
3 Steps to Successfully Transition to Digital Payments
Step 1. Set Your Goals
Your goals may include:
Increasing working capital
Creating infrastructure efficiencies
Maximizing financial gains
Minimizing risk
How can you set your goals?
Analyze your current accounts payable spend.
Determine your current working capital need.
Identify your days payable outstanding (DPO) and days sales outstanding (DSO).
Identify the Industry standards in delivering efficiency in AP and AR departments.
Step 2. Set Your Plan
Your digital payment infrastructure has to serve your organization's purposes, not the other way around. And the use of checks needs to move away.
Disbursements and receivables decreased in organzation's surveyed from 70 to 80 percent in 2004 to 40 to 50 percent in 2019, according to an AFP 2020 survey.
Check remains a primary form of payment
AR vs. AP - Similar reductions in use reported
Size does matter
Major suppliers continue to be paid via checks
Supplier adoption of ePayments is on the rise
The number of ACH debit transfers (16.6 billion) exceeded the number of check payments (14.5 billion) in 2018 for the first time1
Converting B2B payments to suppliers from checks to digital payments is accelerating, according to an AFP 2020 survey2.
Roughly 60 percent reported that their organization is either very likely or somewhat likely to convert the majority of B2B payments to suppliers from checks to electronic payments
Organizations are currently primarily using electronic payments for their B2B transactions
Supplier adoption of ePayments is on the rise
Step 3. Overcome Roadblocks
When working with your suppliers and clients on transitioning to digital payments, it's best to communicate the benefits, such as timelier payments for vendors or cashless transactions for customers, straight-through processing to AP or AR:
Cost savings
Improved cash forecasting
Speed of settlement
Improved supplier/customer relations
According to an AFP 2020 survey, other benefits to sending digital payments include2:
Straight-through processing to AP or AR, and general ledger 49%
Cost savings 45%
Improved cash forecasting 42%
Speed of settlement 42%
Improved supplier/customer relations 37%
According to an AFP 2020 survey, other benefits to receiving digital payments include2:
Speed of settlement 50%
Straight-through processing to AP or AR, and general ledger 31%
Improved cash forecasting 30%
Improved matching for cash application 27%
Improved supplier/customer relations 26%
As companies have had to transition during the pandemic, with many working remotely, electronic payment methods are more convenient and allowed for payments to be made and received with minimal disruptions.
1 "The 2019 Federal Reserve Payments Study," The Federal Reserve System, January 06, 20202 "AFP 2020 SURVEY," Association For Financial Professionals, 2020
