Digital Payments Revolution: Adapting To Change

In today's environment, options are king. Most organizations offer their clients an array of payment choices, and a vast majority of these organizations (92%) accept payments via check – the most basic and easiest-to-process form of payment. While many organizations would welcome the opportunity to convert their paper payments to electronic payments, they believe that the high cost of converting clients is holding back a large portion of check payments.

According to the 2022 AFP Payments Cost Benchmarking Survey, approximately one-third of the organizations responding indicated that they would consider transitioning to electronic payments if the cost were at least 10% less than traditional paper checks. Although the cost of processing an Automated Clearing House (ACH) Debit/Collection transaction is roughly 47% less than processing an incoming check, there remains a significant barrier to convincing clients without recurring payments to allow a vendor to simply draft funds out of their account. Perhaps real-time payments and requests for payment will be a solution for future transitions from paper to electronic.

Checks

Depending on the volume and nature of checks received, most organizations find themselves utilizing a process that is somewhere between incredibly basic – making deposits with endorsement stamps and trips to the bank – and highly automated – involving lockbox services and automated payment posting files. The more automated the collection, deposit and payment-posting process, the lower the organization's per-check cost will be.

When reimagining your check-deposit process, your goals should be getting the funds to a collection point as quickly as possible and processing check and remittance information at optimal efficiency so that your organization can realize and utilize the funds as quickly as possible.

• The average cost for receiving a paper check is $1.99 per check.

ACH Payments (Collections)

Processing receivables payments electronically can be the most efficient both in terms of timing and cost. However, the ability to maximize this payment channel for receivables ultimately comes down to technology and whether you can pull transactions or simply receive them. When your vendor pushes an ACH payment into your bank account, the funds will be received and processed within a day or two. The problem lies with payment remittance – a money exchange using a transfer – and specifically determining which invoices are being paid. To capture this information and post it accurately, you may need advanced or enhanced reporting capabilities from your banking partner.

Conversely, if your organization processes a high volume of repeat transactions, you might find it more beneficial to be the initiator of the transaction and pull the funds from your clients' accounts. This too will require additional technology that allows you to maintain your client bank account information securely. Plus, an online solution where your clients may input and maintain their payment preferences. Depending on the volume of transactions and an organization's staffing needs, utilizing ACH to pull transactions can be either manually intensive or highly automated, with varying costs anywhere along the spectrum.

• The average cost for a single ACH debit is $1.04, which is comprised of $0.50 in external costs + $0.54 in internal costs.

Credit Card

Accepting payments via card is traditionally the fastest, most convenient and most secure form of payment. However, many organizations are quick to point out the uncertainty in credit card processing costs. The nature of the credit card marketplace, with its multitude of card issuers offering a wide variety of cardholder rebates, contributes to the uncertainty of interchange fees on a transactional basis. Some organizations might opt to pay a slightly higher, flat-rate interchange fee to provide some transparency into their transaction costs. Others will focus on how they process credit card transactions to reduce the transaction risk, which has a large impact on the interchange rate.

• For the average ticket size of $606.44, average processing fee is 1.91% + 1.39% internal costs for credit cards and 0.78% processing costs + 0.56% internal costs for debit cards.
• This is an increase in average processing cost driven by rewards cards and the fact that most transactions are "card not present," which increases the rate because of fraud risk.
• Internal costs are comprised of personnel, IT technology, file connectivity, encryption, compliance, audit and PCI DSS compliance, etc.

Adapting to the digital payments revolution requires organizations to assess their current payment methods and embrace new technologies to streamline operations and reduce costs. By understanding the benefits and drawbacks of various payment options, organizations can make informed decisions that optimize their accounts receivable processes. Don't hesitate to explore these opportunities with your Treasury Management banker and strive for a more efficient, cost-effective, and secure payment environment for your business.

Sources:

(1) 2022 AFP Payments Cost Benchmarking Survey. www.afponline.org/publications-data-tools/reports/survey-research-economic-data/Details/paymentscost.

(2) 2023 AFP Payments Fraud and Control Survey. www.afponline.org/publications-data-tools/reports/survey-research-economic-data/Details/payments-fraud.