Demand from small businesses for financial electronic data interchange services is growing and will continue to grow, according to a study from Payment Systems Inc., Tampa.
Until recently, EDI - the electronic exchange of corporate payments and related documents, such as invoices - has been the nearly exclusive domain of large corporations.
Many of these companies, hoping to cut the costs involved in paper-based billing operations, have goaded their cash managers into providing EDI services. But few banks have been able to land enough customers to offset their investment in EDI technology.
That could be changing as more smaller companies warm to EDI.
The Payment Systems study, based on responses from 900 businesses with between $3 million and $10 million in assets, found that 5% used financial EDI in 1995, 12% plan do so this year, and 19% plan to do so in 1997.
Furthermore, 13% of companies averaging about $20 million in annual sales use financial EDI, as do 30% of companies with $100 million in sales.
Companies involved in financial EDI use it 3% to 60% of their payments, according to the survey.
One factor driving small-business use of financial EDI is that large corporations increasingly require suppliers to use it, said Maria Erickson, Payment Systems' director of corporate services.
Another factor is that more small businesses are recognizing benefits of the service, such as reduced paperwork, better payment services from their banks, and the ability to collect payments more quickly.
But many small businesses are still unaware of these advantages, Ms. Erickson said. "Banks and other vendors need to target and educate this segment."
So far, only a few dozen banks offer full EDI services to customers of any size.
Yet, with demand increasing, EDI is becoming an important element of banking relationships, and some financial institutions have begun to be more proactive in marketing EDI to small customers.
Nashville-based First American Corp., for example, signed up a small investment firm, with about $15 million in annual sales, for EDI services earlier this year.
Other banks that have targeted small-business customers include First Union Corp. and BankAmerica Corp.
The small businesses most likely to use financial EDI are those that already use other cash management services, such as automated clearing houses, said Ms. Erickson.
The use of ACH payments among small business has steadily increased over the past five years, according to Payment Systems.
Potential small-business users of EDI also tend to employ full-time chief financial officers, or controllers responsible for financial functions, Ms. Erickson said.
Ms. Tucker is a freelance writer based in Hazlet, N.J.