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AFP Survey: Check use drops, but still plenty of room for efficiency gains

CalendarJanuary 25, 2022
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Today AFP, the Association for Financial Professionals released the 2022 Payments Cost Benchmarking Survey underwritten by Corpay. 

The survey looks at external costs such as bank/payment provider fees, reporting, interchange for credit cards, etc., and internal costs such as personnel, technical equipment, IT support. 

Treasury and other financial professionals can now compare their costs of making and receiving seven types of payments--check, ACH credits and debits; wires; credit and debit cards; real time payments, and virtual cards--against benchmarks for similarly sized companies. This is useful information for identifying areas for optimization and in making the business case for further automation.

This time around, the cost of incoming payments has also been segmented by tender type, a recognition of the fact that impact to vendors should be part of the equation when implementing a new payment strategy.

Survey Says…

This survey was completed about 18 months after COVID-19 began, and reflects the acceleration of electronic payment adoption driven by work from home policies. The typical organization now reports processing between 500 to 999 checks per month and 1,000-1,999 outgoing payments via ACH Credit. In 2015, the median number of checks processed per month was 1,000-1,999 while the ACH Credit median was 500-999 per month.

Data collected from nearly 350 accounts payable professionals confirms that paper checks are considerably more expensive than all electronic payment methods except for wires. Even though the survey found high awareness of the cost of checks compared to electronic methods, 92% of organizations continue to accept them. 

Survey results indicate that despite lower overall check processing median transaction cost for issuing a paper check range between $2.01-$4.00 per check

Increased efficiency was the primary reason cited for transitioning to electronic payments (92% of respondents), compared to 82% of respondents that cited cost reduction. This marks a shift in focus; according to the 2019 AFP Electronic Payments Survey—released well before the pandemic hit—the top three drivers were cost savings, fraud controls and better supplier/customer relations. Efficiency in terms of speed and ease of reconciliation were ranked 4th and 5th respectively in 2019.

Fraud remains a top concern, with 67% citing fraud concerns as a primary driver for electronic payment adoption. Fifty five percent of organizations with revenue greater than $5 billion said the move was part of a larger workflow automation project.

Despite the new focus on efficiency, results from this year’s survey suggest that paper checks are not going away anytime soon. Despite nearly two thirds of organizations saying they would replace paper checks with electronic payments if there was a cost benefit, 37% of all respondents said they would continue to use paper checks regardless of costs.

The report cites the ubiquitous nature of checks, tradition, the challenges of converting vendors to electronic payment methods, and longstanding systems and routines as enduring obstacles to change. This thinking, along with other internal Corpay market research, suggests that many organizations remain unaware of changes in the payments market that could help them achieve greater efficiencies, cut costs and better prevent fraud. 

Our take:

  • Card payments remain underutilized. Procurement, T&E and virtual card processing can be easier to automate as vendors often have systems in place to capture data from ERP and procurement systems. As treasury and payments professionals continue to focus on tightly managing working capital , credit cards can be a very valuable tool. Organizations should evaluate their average cost of capital, cost of credit, and credit terms, and the opportunity cost of accepting/not accepting cards when evaluating them as part of an overall larger payments strategy. 

  • The adoption of virtual cards in particular is still relatively low—23% across all respondents. Virtual cards offer all the working capital benefits--including rebates--associated with traditional credit cards. But since these single use cards can only be used by the specified payee in the specified amount, they offer unparalleled protection against fraud. Considering the focus on fraud prevention, virtual cards warrant a more prominent place in organizations’ vendor payment strategy.

  • The 2019 AFP Electronic Payments Survey reported that the cost to convert customers from paper checks to electronic payments was the number one drawback to conversion. This cost was not considered in the Benchmark survey, but treasury and finance professionals are well aware of the ongoing manual labor involved in enabling vendors for electronic payment. What they may not be aware of is that Fintechs such as Corpay have large, cloud-based acceptance networks, take on that effort on behalf of their customers, and will pay you a rebate based on the processed virtual card spend. For some institutions this has transformed an AP department from a cost center into a revenue driving function.

  • The study looked at seven different payment methods. The majority of companies are using at least three but some may be using all seven. That means they are likely running several discrete payment workflows. Where that is the case, they could achieve further efficiencies with a payment automation solution that consolidates all payment methods into a single workflow.

  • Companies with annual revenue between $1-$4.9 billion are the heaviest users of wire payments, which can cost up to 12 times as much as a check. This is likely due to an organization with a global footprint that is sending more wires to vendors overseas. Companies this size may not yet have a global operations infrastructure and access to local payment systems and banking partners. These companies could benefit from a payments partner specializing in cross-border payments.

As the Benchmark survey notes, the cost to receive a check is typically half of what it is to issue one, and large AR departments have efficient, often touchless processes in place for processing them. Prior to the pandemic, that meant vendors often did not feel the same sense of urgency to digitize payments. 

During the pandemic, convincing vendors to accept digital payments became a much easier discussion as both parties were motivated to move to an electronic format while their teams were working remotely. That created a tailwind for the move off paper checks, which has been far slower than anticipated in North America. Streamlining your payment process and migrating to less expensive, more efficient payment methods should be your priority for 2022.

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