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Mandating Electronic Payments to Suppliers

Introduction

Since the 1980s, when considering improvements to the Accounts Payable process, companies around the world successfully deployed solutions that evaluate Accounts Payable as one component of the Procure-to-Pay process. This yielded improved efficiencies between functional areas, and often eliminated the need for invoices entirely with pay-on-receipt processes.  However, when it comes to making the payment, while the global norm is 100% electronic, for many in the United States printing and mailing paper checks continues as a common method for how payments are processed.

iPollingTM Results Review

Recently, Peeriosity’s iPollingTM technology was used to better understand the performance of member companies in making electronic payments, and what approaches were used to increase the percentage of electronic payments made.  While year to year progress has been made by member companies, only 30% of reporting companies have more than 80% of their U.S. payments made electronically, with 22% of the companies at less than 50%.  Here are the details: 

While the eventual benefit may be significant to both the company and the supplier, only 44% of companies have some type of mandate in place, with 56% of the companies reporting that they do not have any type of mandates to require electronic payments.

Here are a few of the comments from Peeriosity members related to this poll:

  • Global suppliers are required to be paid electronically.
  • We are mandating this for new supplies in North America and EMEA; not in Asia-Pacific or Japan.
  • A mandate signed by Treasury, Procurement and Shared Services/GBS helped us break down internal barriers and change mindsets to really drive e-payments to where they are today: ~90% percent of payments and ~96% percent of invoices paid electronic.
  • We have been >90% for quite a long time, but demanding bank details at any creation of new vendors as far back as 10 years ago, since the cost of transfer is cheaper and easier to manage vs. checks. The US, unfortunately, was the only developed country where checks were still available, but has been decreased substantially in the last few years too. There are a few Asian countries where checks are required in which we still have no choice.
  • We recently began incentivizing suppliers to enroll in an electronic payment method by giving them better payment terms, like NET20 or NET30, versus receiving a check at NET60.

Closing Summary

While making payments by check isn’t necessarily a broken process, since the U.S. Postal Services is highly automated and reliable for the delivery of machine generated checks, the process takes time, typically two to three days in transit, and is costly.  Even though the benefits of electronic payments can be significant for both the company and their suppliers, for U.S. related payments, challenges remain for reaching compliance rates for electronic payments for over 90% or more of payment transactions, with only 17% of companies indicating that they have achieved this milestone.  The good news is that companies continue to make progress, in part by increasingly mandating compliance with suppliers, where possible.

What is your ACH rate for U.S. payments?  Do you mandate?  What options are you considering for reducing paper checks for U.S. based payments?

Who are your peers and how are you collaborating with them?

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 “iPollingTM” is available exclusively to Peeriosity member company employees, with consultants or vendors prohibited from participating or accessing content. Members have full visibility to all respondents and their comments. Using Peeriosity’s integrated email system, Peer MailTM, members can easily communicate at any time with others who participated in iPolling.

Peeriosity members are invited to log into www.peeriosity.com to join the discussion and connect with Peers.   Membership is for practitioners only, with no consultants or vendors permitted.  To learn more about Peeriosity, click here.

 



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