When you consider all the time and cost it takes to process cheques, it’s surprising that AP teams still use them at all. North American businesses spend an estimated $510bn on manual AP processing each year, and cheques are a big part of that. Manual processing is also labour and time intensive, often resulting in payment delays, errors, and penalties. The good news is that more and more AP teams and vendors are recognising the value that electronic payments bring, and they continue to gain momentum. Obstacles persist, however, most notably, the misperception of buyers and vendors that the other party lacks interest in digital payments.

In fact, this “blame game” is the greatest roadblock to deeper electronic payment adoption. In MineralTree’s seventh annual State of AP Report, 57% of finance leaders cite vendors’ unwillingness to accept ePayments as the number one reason impeding its broader usage. Ironically, 63% of vendors claim that conversely the problem lies with AP’s unwillingness to give up checks. These misperceptions need to be addressed, along with other obstacles, in order for both parties to benefit from more efficient, secure, cost-effective and accurate payments.

The financial toll of manual payments

Paper checks are a losing financial proposition for buyers and vendors alike. Finance leaders are burdened with the hard costs of paper stock, envelopes, ink, and stamps, as well as the labor expense to prepare cheques, get them authorised, and then stuff, seal and mail them. According to AFP’s 2022 Payments Cost Benchmarking Survey, the average cost of a check payment all in is $4.72. When you process tens or hundreds of thousands a year, it adds up quickly.

Manual checks, and subsequent delays, are also problematic for vendors, who live by the adage that “cash is king,” and depend on cash flow to fund the acquisition of materials and production of goods. When it comes to payments, vendors’ top priority is getting paid quickly, according to 84% of vendors surveyed in the State of AP report. Their other priorities are accurate payments, low processing cost, and quality of remittance data.

ePayments alleviate buyer and supplier pain

Electronic payments address these issues, making them attractive to vendors and AP teams alike.

Finance leaders surveyed by MineralTree cite time savings (77%), more timely payments (63%), cost savings (57%) and increased security and fraud protection (49%) as the key motivators for switching to ePayments. Also, the additional visibility and control that ePayments offer enable AP teams to streamline processes, better manage payments and cash flow, and uncover discount opportunities.

The report reveals that vendors are also in favor of electronic payments for the benefits they receive, including prompt payment (85%), processing efficiency (79%), improved remittance (44%), cost savings (39%), and fraud protection (38%).

Electronic payments also open up greater payment options, including ACH and virtual cards. While all these methods provide faster payment, cost savings, and increased security over checks, virtual cards are quickly becoming the preferred method. AP teams can recoup 80% of their manual processing cost with digital payments, but virtual cards go even further, enabling businesses to gain valuable rebates every time a virtual card payment is made. These savings can cover the cost of a payment system and even transform AP from a cost to a profit centre.

Security and fraud protection, which has become a major concern for companies, is another key advantage of digital payments. According to 2022 AFP® Payments Fraud and Control Report, checks carry the greatest potential for fraud, with 66% of companies reporting attempted or actual breaches, followed by ACH (37%). Wire accounted for 32% of companies experiencing actual or attempted fraud, and corporate commercial cards 26%, while virtual cards impacted a mere 3% of companies. Since a virtual card is issued for a specific amount and one-time usage only, it provides the strongest security protection of all payment types.

Given these advantages, it’s not surprising that virtual card adoption grew more significantly than any other method over the past year in the State of AP report, from 9% of finance leaders increasing usage of these cards in 2021, to 38% this year.

Overcoming the Blame Game and other obstacles

Because of all the advantages they provide, the momentum is clearly shifting to digital payments. In fact, 71% of finance professionals are planning to increase their use of ePayments this year, and 80% of vendors prefer to get paid that way. Yet, with one-third of AP teams still using cheques more than 50% of the time, and another 18% issuing checks for 26-50% of the time, there is clearly room for growth.

What’s holding buyers and vendors back from broader ePayment usage? In addition to the blame game, which can be easily overcome once both parties realise that the other is actually in favor of expanding digital payments, there is a key bandwidth issue.

The second most cited barrier among finance leaders is AP’s limited capacity to contact and enroll vendors in electronic payments (40%). However, this can be easily solved by using managed payment services, which handle vendor onboarding and enrollment, ensure successful payment processing, and address any vendor inquiries or issues that arise. Some finance leaders (28%) are also concerned that additional payment types require additional processes, which is another misperception that is not the true.

From the vendor perspective, processing fees are the second most common roadblock slowing ePayment adoption (48%). However, their overwhelming desire for timely payments, mentioned previously, greatly outweighs any concerns about cost.

It’s worth noting that vendors rank the need to follow up on payment status as their biggest customer payment pain point. This is often related to slower payments via check and mail. AP teams cite similar frustration handling those inquiries. So, it seems that buyers and vendors can agree that minimising the need for those inquiries via electronic payments is a good thing.

Accelerating adoption

In addition to the tremendous efficiency and cost advantages of electronic payments for both AP teams and vendors, there are important relationship benefits as well. To gain ongoing access to goods and supplies in the midst of supply chain volatility, it’s critical for AP to strengthen vendor relations, and paying them on time will go a long way in accomplishing that. Fortunately, tools and services are available to help finance leaders speed up payments and overcome roadblocks, so they can accelerate time to value for their team as well as their vendors.

Jill Rosenthal is Vice President of Payment Operations, MineralTree, a company focused on creating frictionless accounts payable (AP) and payment processes. As head of MineralTree’s Payment Operations organisation, she leads the teams responsible for optimising customers’ payments and providing value to their suppliers. She has spent over 20 years in the payments industry. Prior to MineralTree, Jill spent 14 years at JPMorgan where she held leadership and strategy roles in their commercial payments business.