Are You Using the Right Payment Solution for Your Business?

Are You Using the Right Payment Solution for Your Business?

Author: Larry Gillie, Director, Commercial Payments Advisor

In today’s landscape, there are several payment solution options available to businesses. To find the method that best meets your business needs and optimizes payment functions, it’s important to understand what is available.

Paper Checks Are Still the Most Common Payment Solution

Checks are still the predominate payment solution for 92% of businesses. Despite the prevalence of check payments, usage comes with many challenges:  

• Security: Checks are the least secure method of making payments. Paper checks put businesses at risk by exposing account details to potential bad actors and opening doors to fraud and theft. According to research conducted by the Association for Financial Professionals, 65% of surveyed businesses were victims of check fraud in 2023.
• Processing and delivery time: Check payments take time to issue and send, leaving businesses at the mercy of the postal service as well as the recipient, who may take days to process the payment. In addition, checks are difficult to track once sent, often extending cash cycles for businesses.
• Expense: Paper checks are also the costliest payment method. Businesses incur costs from purchasing check stock and postage, but also through added processing tasks that require more employees. Studies show the average cost to issue a paper check is $38¹ (not including hidden costs like lockbox fees, tracking and escheatment).
• While issuing paper checks for payments may have a place in financial functions, businesses will need to work closely with their banks to employ Treasury Solutions that help manage the risks.

Boosting Efficiency with an Electronic Payment Solution

Electronic payments provide a way of disbursing funds at a lower cost than paper checks. They also offer efficiencies that can help your business better manage cash as well as the payments process, including:

• Security: Electronic payments offer far greater security than paper checks because no account numbers are provided to the recipient when payment is made. In addition, using dual control can prevent unauthorized electronic payments being sent from the bank.
• Processing time: As a business, you have complete control over when the payment is issued and deposited into a recipient’s bank account, improving reconciliation and cash flow.
• Expense: Because process flows are streamlined when issuing electronic payments, businesses will realize reduced costs. According to AFP survey data, the cost for electronic payments ranges from 26 cents to 50 cents per payment.
• Efficiency: Businesses may send information with a payment that aids in reconciliation for both the payer and the payee. Electronic payments also provide enhanced reporting protocols for businesses to better track and monitor spend.

Two of the most common types of electronic payment solutions are Automated Clearing House (ACH) and wire transfer. Each can play a role in a business’s payments strategy, but ACH payments provide bigger benefits for most situations. Wire transfers are typically reserved for very large domestic payments, ones that require instant availability, or for international payments.

ACH can provide next day payments, with the added advantage that transactions can be scheduled. It also allows clients to send same day payments in urgent situations.

ACH is a highly secure payment process, particularly when combined with available fraud controls, and offers a way to reverse payments should it become necessary.

Finally, ACH payments offer a more economical way to manage accounts payable. Processing costs can be added up in cents, while wire transfer costs are counted in dollars.

Other electronic payment solutions include commercial cards, virtual cards and global banking solutions to help manage payment risk for international trade. Most businesses will find it easiest to select the right payment type by consulting with their bank.

Simplifying Your Business Payments Strategy

In today’s digital world, there are many cost-effective and efficient methods businesses can use to make payments and manage the accounts payables process. Included advanced reporting capabilities also make it easier to track transactions and to manage cash flow. Businesses should consult with their bank to find the right payment solution for their needs.

Learn more about FNBO’s payment solutions on our website.

About the Author

As a Commercial Payments Advisor, Larry consults with clients on liquidity and payments issues. He puts his banking and technology experience to work by helping clients strategize paths to financial efficiency without sacrificing security.

¹ “AFP 2022 Payments Cost Benchmarking Survey” (Association of Financial Professionals)