Chemical supply giant BASF is just one ahead-of-the-curve company adopting electronic payment systems to reduce costs.

There seems to be rosier times ahead for the electronic payment industry. More than ever before, companies are looking to smooth their buying processes and reduce labor costs and order-entry errors by adopting systems that support electronic fund transfer and the automated delivery of invoices and purchase orders. Although the challenge of integrating electronic payment systems with older legacy systems remains, as well as a persistent skepticism amongst management, these deterrents are expected to dwindle in coming years. As the benefits of doing away with paper-based processes become more evident, the adoption of electronic payment systems is expected to grow.

Last year, out of the 9.1 billion business-to-business transactions that took place, a sizeable 13% were processed through the automated clearing house (ACH), a computerized clearing and settlement operation run by the Federal Reserve that exchanges electronic transactions among depository institutions. 82% were done with checks and 5% were handled with commercial cards.

The first signs of a shift to electronic payments have already begun to appear. Out of last year’s B2B transactions that specifically involved high dollar amounts, the percentage of ACH transactions was 34%. Experts predict that as businesses weigh the costs of payment methods, they will find it more economically sound to use the ACH. Presently, the cost of writing checks amounts to an average of $1.71 per check. Compare this to the cost of an ACH payment, which is estimated at between 15 and 40 cents, and the cost advantage of adopting electronic payment systems becomes evident. According to Alenka Grealish, financial services analyst at Celent Communications Corp., Boston, MA, “This is a great environment – when revenues are flat and when you focus on the bottom line to get the costs out – for the migration to electronics. It is a time when companies can be convinced to move to an electronic supply chain.”

Adding momentum to the electronic payment trend are business-to-business technologies that support the sending of remittance data along with ACH payments. The institutions that use these technologies are gaining converts by linking payment systems to accounting systems and creating the standards for electronic payment and remittance. Those who will be successful in the years to come, Grealish says, are the institutions that will be able to offer easy-to-implement solutions that bring forth results.

Earlier this year, a study conducted by Gartner Inc., Stamford, CT, reported that large non-service firms are expecting their volume of electronic payments to more than double over the next four years. The study surveyed more than one hundred corporations with revenues of $100 million or greater. In looking at this select group, Gartner found that 18% of the companies have now connected their e-procurement and electronic invoicing and payment systems, up from a paltry 3% just a year earlier. According to Gartner Financial Services’ vice president, Avivah Litan, “Sellers want to collect cash faster. This can be achieved by the automatic application of payments to accounts receivable, online payment guarantees and non-repudiation of transactions. The linkage of invoicing and payments with logistical systems also will enable the automatic triggering of payments once buyers receive the goods.”

BASF Corp., Mount Olive, NJ, one of the world’s largest chemical companies, is an example of a firm that is actively pursuing the benefits of electronic payment. BASF plans to offer its customers access to electronic invoice, presentment and payment services in the near future. With this system in place, the chemical company will transmit invoices from its ERP system to its payment applications supporter, BillingZone. The payment applications supporter will then pass the invoices on to the chemical giant’s customers. Through their browsers, the customers can then authorize the invoice and transmit payment instructions to their financial institutions, detailing when exactly the payment should be transferred.

The chemical company’s planned services constitute a major expansion over their previous payment system. When the new payment system is in effect, their customers will be able to move uninterruptedly through the procurement process from start to finish. When BASF first considered updating its services, the company had thought of using electronic data interchange (EDI) to send out their invoices. After further consideration, however, the company decided this would be too expensive for its smaller-sized customers. Electronic payment also facilitates the resolution of ordering disputes. Once it is implemented, customers will be able to receive data more quickly and respond faster on the occasions that errors occur. In these instances, customers will be able to log on to dispute a bill and exchange information about their order in real time.

While paper payment methods won’t disappear over night, their electronic alternative is steadily gaining ground. With electronic payment’s knack for speeding up dispute resolution and disbursements, securing transactions and cutting administrative costs, its widespread adoption in the near future does not seem too unlikely. Stephen Flett, CEO of SurePay, Melville, NY, says, “Electronic payment adoption is accelerating, but most business transactions still are conducted with checks. The speed in which companies will move to e-payment tools is dependent on their impetus for adding processing efficiencies to their systems.”

Source: Money Talks
Richard Mitchell
Electronic Commerce World, March 2002
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