Accurate and efficient payment processing is the highest priority item on every CFO’s list. Getting paid for the services we provide and the act of recording that payment to the payer’s account is Payments 101. Right? This sounds simple enough until you begin to evaluate the numerous ways a business or consumer can submit a payment and the subsequent information your accounting systems require to accept and post that payment. These complexities are creating the demand from billers for normalization and simplification from the payments industry.
From the beginning of time, as we know it, there has been a mechanism to pay for goods. From bartering, to shell money, to gold and to the arrival of the dollar in 1913, we have seen large changes that corporate billers and financial institutions have had to react to. In the 1920s, some corporations reacted to consumer needs by creating the charge card, allowing customers to purchase goods without having to make a trip to the bank. Financial institutions latched on to this theory in the 1950s and created the credit card.
To pay for goods, the majority of consumers paid in cash until the 1960s when the tender of a “check” opened the path to pay, but not in person. Up until the mid-1990s, it was “the way” to accept payments. We trained people, refined processes and created automation for optimization. We were good—up until the 1990s that is when the Internet began to open up alternate methods of payments. For the last 15-plus years, those who consider payments their livelihood have had to buckle in tightly because the industry has been changing at warp speed.
Corporate billers are getting bombarded by the number of channels in which they receive payments, and there is no end in sight for any of these existing channels. Although there has been a decline in paper checks, according to the latest Federal Reserve Bank study, there are still over 25 billion checks processed each year and over 21 billion credit card payments for goods and services. In fact, there are five to 10 methods to make and receive a payment, and each payment method and each channel requires expertise. This faster widespread adoption of new payment technologies is also hindered by the efficiency of existing payments infrastructure, a backlog of other IT projects and information security concerns related to new technologies.
"The most common use of mobile payments was to make an online bill payment, with 47% of mobile payment users doing so."
Standardization seems to have taken a back burner, and many billers are feeling the pain that is translated into higher costs for processing payments and lower customer service ratings. Billers need to post payments accurately and timely by:
- Accelerating cash collections to reduce days sales outstanding
- Managing receivables data from multiple sources
- Mitigating credit risk, aging receivables
- Forecasting cash flow
In an effort to mitigate these risks and contain costs, financial institutions and corporate billers are looking for ways to integrate the receivables process. Based on a recent Aite Group’s study, electronic receivables solutions for increased straight-through processing, including invoicing, exceptions handling and interfaces with banks and buyers, is a key initiative. Providing better accountability for outstanding invoices and payments as well as creating predictive payments information for corporate treasury to better plan working capital is a must-have item. Keep in mind that:
- Multiple payment channels mean varied processes
- Manual processes exist due to disparate systems within the cycle
- Information received is either insufficient or in different formats, requiring excessive intervention to use
Billers need a single experience for all payment types and channels. As Internet and mobile payments become more streamlined, these channels must have the same data and tools for optimal posting, but the reality is that these payment channels don’t offer the control that the paper coupon and check have provided for years. Pew Research Center’s study, released in April 2012, notes that 12% of mobile phone owners have made a mobile payment in the past 12 months and the most common use of mobile payments was to make an online bill payment (47% of mobile payment users).
With the lack of corresponding data associated with these payment channels, billers need a common and integrated platform for decisioning, exception management and payment posting and, most importantly, a roadmap for future expansion, such as data analytics and accounts payable integration. The evolution of payment analytics is made possible by an integrated receivables hub. Business intelligence, such as tracking payments by history and degree of credit risk, is difficult, at best, when payments are processed in disparate systems. Integrating to a single location makes it possible to aggregate, dissect and assimilate information in ways that decision makers at corporations can use to grow their business.
So, what’s in your payment strategy, and does it translate to or take away from “what’s in your wallet?” Based on Aite Group’s 2012 survey, 87% of small businesses, 88% of mid-sized companies and 82% of large companies are processing payments in-house, which probably means that most of you are beginning to feel the angst of payment integration. Determining an integrated receivables strategy is paramount to your success.
These platforms are not just for financial institutions; so larger corporations may choose to investigate the market. The critical factors in your decision process should consist of:
These platforms are not just for financial institutions; so larger corporations may choose to investigate the market. The critical factors in your decision process should consist of:
- Technical expertise
- IT and development resources
- Security and compliance
- Time to market
- Cost to delivery
Although payment processing seems overwhelming, there is an enormous amount of innovation to address efficiencies that allow you to stay focused on your business.
TRACY A. DALTON is a payments and full bill cycle management professional, responsible for driving new product and sales through innovation. Ms. Dalton has expertise in integrating traditional and new technology for optimal payment processing in an outsourced/SaaS environment. Contact Ms. Dalton at tdalton@wausaufs.com.
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