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As the AFP survey indicated, one of the reasons why it has been so difficult for companies to entirely move on from checks is that some of their business partners—typically smaller companies—have been reluctant to do so. However, recent data suggest that the tide may be turning.
The recent American Express One AP Survey found that 84% of U.S. business decision-makers feel positive about transitioning to a digital payments system. Fully 79% of respondents said they still relied on paper checks for at least some of their supplier payments before COVID-19, and 44% said most of their payments were not made digitally before the pandemic. However, respondents recognized that digitizing their AP process can address common pain points.
Perhaps most importantly, more than a third (35%) of respondents to the American Express survey said that the impact of COVID-19 has made them consider changing how they process payments.
“I think COVID-19 has really brought to the forefront treasury professionals thinking about electronic payments,” said Rue Jenkins, payments group lead for the AFP 2020 Planning Task Force and a former corporate treasurer. “If you're not moving to that, you need to think about doing it. I think this crisis has been the catalyst that moves treasury departments in that direction.”
AFP Chairman Bob Whitaker, CTP, Senior Vice President of Corporate Finance for DHL, sees this moment as a wake-up call for companies who are still relying on paper checks. “When we come out of this, everybody needs to make an effort to push to electronic payments,” he said.
For years, many companies didn’t see a need to make a move because they saw check payments as still being fairly efficient. “But you've got to drop a check in the mail or use FedEx,” Jenkins said. “As we've seen with people having to shelter at home, and also with staff cutbacks, there have been delays in physical delivery. With ACH and some of the other e-payments, as long as there's somebody working remotely that can move a file, your payments can go out in a relatively efficient and timely manner.”
Furthermore, the process of producing checks just takes more time. Someone physically needs to be able to print them and manage check stock. “I think the other thing too, is that the check production schedule has more than likely changed,” Jenkins added. “By that, I mean that you may have been doing checks three times a week, and now that's gone to once a week.”
Rajiv Ramachandran, Vice President of Product Strategy and Management, Coupa Pay
“It’s not just about paper checks; it’s about a broad spectrum of processes in things like invoicing that have been manual,” he said. “What we’re seeing now is companies making the right decision to come out of this successfully, and payments is a space where we are seeing a lot of push in that area.”
The 2019 AFP Electronic Payments Survey found that check usage for business-to-business (B2B) transactions has continued to decline, with only 42% of respondents making payments via check. The survey noted that the decline was not surprising, given checks’ slower processing times and higher transaction costs.
However, that 42% figure is still elevated and reflects paper checks’ prevalence in B2B transactions. Checks continue to endure due to challenges in changing internal processes, the increased cost of transitioning to alternative payment methods, and overall difficulty convincing business partners to move to digital payments, according to the survey.
Fast-forward to 2020 and an environment where cutting a physical check has become much more challenging, and B2B payments may be finally turning the corner. According to corporate treasury professionals, financial services companies and technology providers, that’s exactly what is happening as we head into 2021.
American Express has observed its business customers gradually moving to digital payments over the past four to six years, but the pandemic has significantly accelerated that migration. “It's almost like the silver lining here,” said Eric Frankovic, Senior Vice President and General Manager, Large and Global Client Group, Global Commercial Services for American Express. “It's no longer something you can casually look at. It's something that you have to move towards and actually implement.”
Rajiv Ramachandran, Senior Vice President of Product Management and Engineering for Coupa Pay, has observed this shift as well. He sees it as part of a larger trend in which treasury and AP departments are moving away from manual processes in general. “It's not just about paper checks; it's about a broad spectrum of processes in things like invoicing that have been manual,” he said. “What we’re seeing now is companies making the right decision to come out of this successfully, and payments is a space where we are seeing a lot of push in that area.”
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In this interactive article, sponsored by Coupa and American Express*, we explore how digital payments adoption can drive efficiency and optimize working capital management for companies of all sizes. The time for e-payments is now.
As treasury and accounts payable departments head into 2021 and many organizations continue to work remotely, the calls to permanently move on from legacy payment methods, such as paper checks, have grown stronger.
Treasurers Look to E-Payments Heading into an Uncertain 2021
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Check Usage in Decline
Pandemic Increases Urgency for E-Payments
Digital adoption isn’t always easy. It may require a lot of structural change both inside and outside the company. That’s why it’s important to develop a roadmap. “Anytime you undertake an initiative like this, first and foremost is change management,” Ramachandran said. “Customers worry about the amount of change they're bringing both on their end, as well as on their suppliers’ ends. So, we work very closely work with them to really grow into this change.”
Organizations should take the time to ensure they’re selecting the solutions that meet their needs. Companies may want to take a phased approach to onboarding vendors and partners. Business partners can be onboarded by industry, geography, size, etc. Internally, organizations will want to make sure there is alignment between all relevant parties, such as treasury, AP, procurement and IT.
“You don't want a siloed approach to any of this,” Ramachandran said. “There are multiple stakeholders here and you want these teams to come together.”
Equally important is knowing what not to do. “I think a lot of companies think too piecemeal, and I think the challenge with that is that they're not looking at it holistically across the utilization of all payment types,” noted J.R. Robertson, Vice President of Sales and Partnerships for Coupa Pay. “They may be looking at what is the best for them as a buyer, but I think looking at it from buyer/supplier standpoint is really important. So coming up with a holistic strategy that utilizes all payment types and gives payment optionality to their suppliers is really important and where I would recommend for companies to start.”
To that end, some treasury and AP departments have devised broad strategies to incentivize their vendors to move to e-payments. For example, Kansas-based utility Evergy’s vendors have the option to receive check payments—but if they do, they’ll have to wait for it.
This program has been in effect over the past several years at Evergy across its entire spectrum of vendors. “That’s gone a long way towards getting them to accept ACH and card payments,” Gilligan said.
Create a Roadmap for Digital Adoption
Rue Jenkins, Former Treasurer, Costco
“I think COVID-19 has really brought to the forefront treasury professionals thinking about electronic payments,” said Rue Jenkins, former Treasurer for Costco. “If you’re not moving to that, you need to think about doing it. I think this crisis has been the catalyst that moves treasury departments in that direction.”
According to Trina Dutta, Vice President and General Manager of B2B Networks and Automation, Global Commercial Services for American Express, companies are finding that e-payments adoption is becoming key to their survival during this pandemic.
“Businesses need to make sure that they can pay their vendors on time, and support the critical business functions needed to stay afloat,” she said. “Customers across segments are coming to American Express and saying, ‘We literally can't get into the office to cut our checks. What can Amex do to help us?’ Through our AP Automation offerings designed to enable virtual AP departments, we can help them better weather the current crisis, continue their normal business operations, and be better positioned for future growth. In this way, the pandemic has served as a catalyst for e-payments adoption.”
Dutta added that there can be inertia among companies when it comes to updating their payment processes. In normal situations, streamlining payments is viewed as more of a nice-to-have than a must-have. But in a crisis of this magnitude, companies have been forced to think hard about better ways to execute some of their basic processes.
Adopting digital solutions for payments can be relatively smooth, provided a corporate works with a partner that makes an effort to integrate solutions with its existing systems. “Large market clients can take several weeks to launch, given the required connectivity to the ERP or other existing systems,” Dutta said. “However, once they are up and running, these solutions tend to work very seamlessly.”
Frankovic added that in the past, companies had a tendency to wait on digital adoption until some of their peers made moves first. That’s no longer the case. “We’re at a point now where if you aren't planning, and in the process of moving, you're actually lagging in almost every industry,” he said.
This is true even for those smaller suppliers, who were previously reluctant to abandon old methods. These companies have become much more motivated to get access to their payments, as many are struggling just to make ends meet. “We've actually seen any reluctancy that might've existed really fade away, Frankovic said. “Small suppliers want their money, and the easiest way to get it is usually to partake in one of these programs. We know there is a benefit to e-payments, and we can define the benefit to the large buyer. But now more than ever, it has a really definable upside for the small supplier as well.”
Adapt to Survive by Adopting Digital
Check usage for business-to-business (B2B) transactions has continued to decline, with only 42% of companies making payments via check.
Partner Content
The Power of Diversity
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With the advent of globalization and technological advancements, the workforce has expanded beyond a nation’s borders, leveraging the global network of diverse candidates from countries around the world. As such, diversity and inclusion have become key buzzwords over the years as organizations dedicate resources to establishing and maintaining a diverse and inclusive organization.
As organizations work to implement this ethos, the social discussion surrounding diversity measures has been muddled with misconceptions on what diversity is, its importance to modern organizations, and how to foster diverse and inclusive spaces. In the FinNext 2020 Virtual Series webinar, The Power of a Diverse FP&A Team, panelists discussed these misconceptions, shared their own career experiences, and provided actionable insights towards establishing a culture and policies that support a diverse workplace.
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According to a survey by AchieveNEXT, 58% of middle-market companies said that they were effectively leveraging diversity and inclusion for enterprise growth and success, and 81% consider diversity and inclusion either somewhat critical or very critical. Yet, when looking at reality, the beginning of one’s career may seem diverse but as you progress towards the C-suite, that dynamic shifts. This gap highlights the difference between claiming to value diversity and supporting the diversification of your employees at all levels of the organization.
There is an old notion that diversity is simply about the recognition of difference, but Geetanjali Tandon, senior director of financial planning and analysis at Centralsquare, pushed back on this rhetoric, noting that simply celebrating women or a particular culture for a day doesn’t make an organization truly diverse.
Instead, Tandon offered an alternative view. “Becoming diverse is actually making sure that you have the right people, the diversity in your talent pool, in your promotion pool,” she said. “When you are looking at projects, when you're looking at the things that are bringing people forward and giving them exposure, who are the people that we are giving those projects? It’s having a conscious thought process of how we are doing that and why we are doing that.”
Tandon’s point reflects a key component to diversity, that there is a difference between representation and equity. Diversity inherently means that there are differences among individuals and these alternative perspectives are what help combat groupthink within organizations. If this benefit of diversity is to be utilized, then there must be a cultural shift within the organization to not only acknowledge the fact that there are differences, but to accept, encourage and promote constructive dissent.
Geetanjali Tandon, Senior Director of Financial Planning and Analysis, Centralsquare
"Becoming diverse is actually making sure that you have the right people, the diversity in your talent pool, in your promotion pool."
Dissent is often thought of in a negative light, as something we should work to root out or overcome. In reality, dissent simply means the expression of opinion in variance with what is previously held. The negative connotation is our social bias working against us; humans are social creatures that desire an ordered community to a certain degree, and so we naturally view dissent as a threat to that order instead of perceiving it as an opportunity to develop and grow the community.
Michael High, director of finance for U.S. Gulf of Mexico Deep Water/Royal Dutch Shell, touched on the discomfort of adopting this perspective. “I think one of the most important skills you can have as a leader is actually a growth mindset and recognizing that you don't know everything,” he said. “You can't have a fixed mindset around your understanding of diversity and inclusion; you have to recognize that actually you know a lot less than you think you do.”
Conformity cannot come above all else in today’s world. Meredith Jones, principal cloud economist at Amazon Web Services, detailed her company’s approach. “One of the things that we have at Amazon is the leadership principle that guides our behavior; it's called ‘Have Backbone, Disagree and Commit.’ Essentially, that principle illustrates how we value diversity of thought. We expect any Amazonian at any level to speak their mind, to challenge conventional wisdom. In doing so, that diversity of thought has really been foundational to innovation,” she said.
The current COVID-19 pandemic presents a stark reminder as to why organizations need constructive dissent, noted Robyn Pollack, Managing Director at AchieveNEXT: “Diversity is going to be critical to the rebound of enterprises. Diversity of thought is what drives innovation and better problem solving and better decision-making. Having those diverse opinions and thoughts and experiences in the room is what's going to drive those better decisions.”
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While the advantages to adopting e-payments are clear, there is still the matter of immediate cost. Adopting any new technology, while it may save your organization thousands and even millions of dollars over time, is still going to be a sizable investment in the near term. At a time when cash is constrained, companies may have to better leverage their existing credit lines to fund digital transformation.
Robertson noted that credit will be harder for companies to get, but one strategy they can apply is limiting some of their dormant employee credit card lines. “No one is traveling, and you have this carved out credit line per physical card that's somewhere between $3,000 and $5,000 per employee,” he said. “That's tied up and not being used.”
Indeed, this is certainly a time to be frugal and rethink how you are applying any capital and credit that you already have access to. For example, if companies have capital set aside for property improvements, those funds could be repurposed for e-payments. “Even with companies starting to reopen their facilities, you may not be too keen on doing any capital improvements on a property—at least in the short run until you see how things go,” Jenkins noted.
He also recommends managing inventory a little closer. “Because you've got limited openings and you can only accommodate a limited number of people, you might not have to have the same merchandise selection,” he said.
Dutta advises corporates to take a broader view on the different levers they have to optimize their working capital. It doesn't just have to be through traditional methods; there are many options available to them. For example, a virtual card program can extend payables, while also ensuring that suppliers get paid in a timely manner. “Virtual cards can become a lever that the AP department or the CFO's office can use as a regular part of their business and create a lot more working capital flexibility,” she said.
Michael Benvenuto, Chief Procurement Officer for global professional services firm Aon, pointed out some of the advantages to using the virtual Card program provided by American Express and Coupa. “The Coupa Pay functionality gives us the ability to leverage our longstanding relationship with American Express, utilizing our global procurement platform Coupa to make efficient and secure virtual Card payments to suppliers, while optimizing working capital,” he said. “Their seamless, end-to-end integration, within our existing Coupa platform, helped us enable a solution that serves our colleagues’ needs, provides spend visibility, and meets our firm’s spend management requirements.”
Virtual card programs have also worked well for Evergy, allowing the payer to make some money through cash rebates. However, Gilligan cautioned that when a company negotiates with the virtual card provider, the amount of time it takes to pay off those cards comes into play. “The longer you take to pay on that card, the skinnier your rebate is,” he said. “So you have to do some analysis to see what works best for your systems.”
Funding Digital Migration
Investing in e-payments will pay off in the long term. Right now, and through the first half of 2021, a company may want to maximize working capital. But working capital may not be as much of a concern in the second half of next year. If a treasury or AP team already has e-payments, they can be more flexible in how they spend money.
While the current crisis has hurt many companies, those that invest in the right areas will set themselves up for a bright future. “A lot of our customers are seeing this as more of an opportunity,” Ramachandran said. “Yes, there is pain. But this is a chance to do the right things and set yourself on the path towards greater success. Whether you're a small, medium or large business, you have an opportunity to come out of this successfully. But this is the right time to make these decisions.”
Looking Ahead to 2021
Jim Gilligan, CTP, FP&A, Former Assistant Treasurer, Evergy
“We adopted a philosophy of incentivizing our vendors to accept payments electronically by paying them earlier. If you’re a vendor and you want to be paid by check, we won’t pay you until at least 60 days after we receive the invoice from you. If you will accept ACH, then we’ll pay you between 30 to 45 days. And if you’ll accept a card payment, we’ll pay you within 15 days.”
Eric Frankovic, Senior Vice President and General Manager, Large and Global Client Group, Global Commercial Services, American Express
“We’re at a point now where if you aren’t planning, and in the process of moving, you’re actually lagging in almost every industry.”
Four Ways to Fund Digital Migration
• Limit dormant employee credit card lines.
• Repurpose funds planned for property improvements.
• Manage inventory more carefully.
• Implement virtual card programs.
Rajiv Ramachandran, Vice President of Product Strategy and Management, Coupa Pay
“Whether you’re a small, medium or large business, you have an opportunity to come out of this successfully. But this is the right time to make these decisions.”
By Andrew Deichler
Check Usage in Decline
Create a Roadmap for Digital Adoption
Adapt to Survive by Adopting Digital
Funding Digital Transformation
Looking Ahead to 2021
Pandemic Increases Urgency for E-Payments
Moving Away from Manual Processes: A Win-Win for Treasury
+ Faster payments to suppliers
+ More visibility into transactional data
+ Improved compliance with regulations
+ Less propensity for errors and fraud
+ Frees up treasury teams to focus on strategy
“They're looking at all these areas together, consciously make that choice to bring digital payments and its full value to their organizations,” Ramachandran said.
Key Advantages to Digitizing Accounts Payable
Increased efficiency and time savings
Improved payment accuracy
Realizing long-term cost savings
Improved cash flow management
Perhaps most importantly, more than a third (35%) of respondents to the American Express survey said that the impact of COVID-19 has made them consider changing how they process payments.
*American Express One AP Survey
Steps to Digital Adoption:
Develop a roadmap.
Figure out which solutions are right for your organization.
Make note of what not to do.
Determine how business partners should be onboarded.
Work cross-functionally with other departments to ensure a smooth transition.
*American Express and Coupa have a partnership and joint solution, which provides clients with integrated virtual Card payments in Coupa Pay.
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