After years of efforts by banks to get their commercial clients to ditch paper checks, electronic payments have finally begun to wrest a significant share of the business-to-business market.
New data suggests that the economic woes of the past few years — which created an impetus to cut transaction costs and more accurately track cash flow — and other factors are prodding businesses to make the switch.
Companies on average make 57% of their business payments via paper check, down from 74% in 2007, according to survey results that the Association for Financial Professionals plans to release Monday.
"We're seeing a huge increase in focus [on electronic receivables tools], especially after the financial crisis," said Diane R. Quinn, a managing director and the global corporate segment executive with JPMorgan Treasury Services, a division of JPMorgan Chase & Co., which sponsored the survey. "People now are really … much more interested in investing."
While consumers have been abandoning checks for more than a decade, and that trend has accelerated in recent years, checks remain ingrained in many companies' supply chain processes.
Some businesses remain reluctant to adopt electronic payments in lieu of checks because of the need to match remittance information with invoices.
Despite industry initiatives to allow for more remittance data to be included in wire and automated clearing house payments, businesses still struggle to install systems to help reconcile payment information and invoices, experts said.
"They're up against some practical constraints," said David Bellinger, the director of payments at the association. "You're competing against other businesses within the company for scarce [information technology]. That's always an issue."
For those that do make the leap to electronic payments, the cost savings are compelling. For example, ACH transactions typically cost about a tenth to a fifteenth of what a check costs for corporate bank clients, said Nancy Atkinson, a senior analyst with the Aite Group LLC research firm in Boston.
"It's a way to really improve efficiency, reduce costs, improve their cash forecasting and really focus in on the strategic value from a treasury perspective," Quinn said.
Foreign trade is another major reason for the shift to electronic payments, Bellinger said.
Of the 484 respondents to the Bethesda, Md., association's survey, 78% reported sending at least some of their payments internationally.
Contracts with cross-border partners often dictate that businesses use specific payment methods. Wire transfers make up about 69% of cross-border payment volumes, according to the survey.
However, corporate clients also face challenges in getting their suppliers, buyers and other trading partners to make more payments electronically. A shift from checks to electronic payments, including credit cards, ACH and wire transactions, requires changes on their end, too.
Of the survey respondents, 83% cited difficulty persuading their customers and 74% cited difficulty persuading suppliers as barriers to using electronic payments.
Banks have invested heavily in receivables and payables processing services in recent years, but until recently, getting businesses to use the services has been "more aspirational than actual" because of technology integration challenges and businesses' familiarity with paper payments, Atkinson said.
Atkinson and George Thomas, the principal of the Oakdale, N.Y., payments consulting firm Radix Consulting Corp., said work by banks and their technology vendors to provide electronic receivables processing services to corporate customers has helped companies make more payments electronically.
However, many of the services available still require suppliers and buyers to match up remittance information on the back end, Thomas said.
"Every company would like to get an electronic payment but they don't want to guess what invoices are being paid … if that process is being automated," he said.
JPMorgan Chase has seen growing interest in Order-To-Pay Rapid Deployment, a service it announced this year for helping midsize companies automate electronic payments to suppliers, Quinn said.
Its Receivables Edge service, which companies can use to view document images tied to lockbox and electronic payments, has also found more takers internationally in recent years, she said.