American Express Co., providing the first detailed look at its strategy for corporate payments, says it is focusing on large companies with the clout to push a new remittance service deep into the supply chain.
The New York company unveiled an electronic business-to-business payment service Thursday and said it is already in talks with more than 100 such companies, which in turn do business with many smaller suppliers and sit at the center of their own payment networks.
One analyst estimated that there are 1,200 U.S. companies big enough to require suppliers to use a particular payment service. Amex says it already has strong ties to many of those companies.
Amex laid the groundwork for this strategy with its December acquisition of the B-to-B payments vendor Harbor Payments Inc.
The S2S eInvoice&Pay service allows companies to make payments through the automated clearing house network or by charging them to an Amex corporate card. The service will be marketed initially to Amex's corporate purchasing card customers, which include more than half the companies in the Fortune 500. Amex said this built-in pool of potential customers could give the company a significant advantage out of the gate.
Brenda Blake, Amex's senior vice president of electronic invoice and payment services, said that such a setup can help large corporate buyers manage their cash positions better. The flexibility of using either card or ACH payments also can help buyers qualify for many suppliers' early-payment discounts, which are often impossible for companies that process paper invoices and issue checks, she said.
Maggie Scarborough, a senior analyst at Financial Insights Inc., a research unit of the Boston technology publisher International Data Group Inc., said that there are a "limited number of large buyers" that can demand that their suppliers adhere to a new system for submitting invoices and receiving payments. "Everybody's banking on the same 1,200 companies."
S2S eInvoice&Pay can generate electronic purchase orders, invoices, payments, and remittance documents for corporate buyers. It is based on the hosted B-to-B payments service developed by Harbor Payments.
Amex already has announced several customers for S2S eInvoice&Pay. Nestle USA, a longtime Amex commercial card client, will begin implementing the service next month with its network of suppliers, and Amex plans to use the service to automate payments to its own supplier network.
Amex also inherited several customers that were doing business with Harbor Payments before the purchase, including the consumer-products maker Procter & Gamble Co., the financial processor Automatic Data Processing Inc., and the flooring maker Mohawk Industries Inc.
One legacy customer, the machine-tool maker Kennametal Inc., found that using electronic payments reduced its invoice processing costs by two-thirds and cut the dispute-resolution cycle to two days from 60.
Gordon Smith, the president of Amex's global commercial card group, said that his company plans to begin promoting the service in the second half to customers of its Open small-business division. Amex also plans to persuade merchants that accept its cards to enroll as suppliers on the online network. The company said it expects to announce enhancements this year aimed at promoting online procurement.
Harbor Payments will continue targeting industries such as consumer packaged goods, flooring and construction products, and diversified financial services, where it already has enrolled prominent customers and suppliers. Ms. Blake said Amex also is finding interest among companies in the pharmaceutical and technology industries.
Ashish Bahl, a senior vice president at Amex and the general manager of Harbor Payments, said his unit also is testing international disbursements but must resolve such issues as European value-added tax systems. There is no target date to introduce the international component of the payment service.
Mr. Smith said that Amex will continue using the Harbor Payments brand name "for the foreseeable future." The unit competes with B-to-B e-payment vendors such as Xign Corp. of Pleasanton, Calif., which is partially owned by MasterCard Inc. and is marketed by banking companies such as JPMorgan Chase & Co.
Alenka Grealish, the manager of the banking group at the Boston research and consulting firm Celent LLC, said that using an electronic payment system could save buyers money by reducing their suppliers' costs.
Buyers benefit when the payment cycle takes as long as 60 days, but this delay in payment can squeeze suppliers and often "comes back to bite the buyer, because the supplier has to pass along his costs," Ms. Grealish said at Amex's New York press briefing introducing S2S eInvoice&Pay.
"There's a lot of pain here, but I'm optimistic about solutions to the pain," she said. "American Express is one indicator of what third parties are going to be doing."
Mr. Bahl, who founded Harbor Payments in 2000, said that the new service could supplant the venerable electronic data interchange format. EDI uses dedicated payment links to route invoices and funds between suppliers and buyers, a model much like the one Amex is pursing, though Mr. Bahl said the new electronic invoice presentment and payment system is more flexible and is easier for the smallest suppliers to use.
"The largest companies globally are migrating to an EIPP model," he said. "American Express has come in at an inflection point, giving legitimacy to a nascent industry."
