Universal payment platforms provide a range of options for paper payments, electronic payments, and the distribution of payment documentation in paper or electronic form.
Throughout the corporate world, managements are waging a war on paper. The new medium for corporate "paperwork" (transactions ranging from bids and contracts, sales and purchase orders, documents and reports, to financial settlements and more) is electronic.
Pockets of resistance remain. One of these is the accounts payable check. While most payers and their employees favor electronic payments for payroll, many vendors cling to the inferred stability and security of the paper check despite paper payments being less stable and less secure than purely electronic payments. Plus, they are an efficiency rogue.
Resistance is gradually melting away under a number of influences, among them the availability of universal payment platforms that do not limit a corporation to an either/or commitment. Such platforms provide a full range of options for paper payments, electronic payments, and the distribution of payment documentation (remittance advice in the case of accounts payable) in paper or electronic form
This article discusses where corporate accounts payment methodology has been (checks), where it is headed (electronic, primarily ACH), and how it's going to get there: through the universal payment platform. I'll conclude with practical, real-world examples from three major companies: a paper producer, a medical consulting company, and an industrial manufacturer.
Checks in Transition
Historically, checks have entailed serious expense for production, distribution, and clearance, but this expense was accepted and largely ignored because of the benefits checks provided over cash transactions. Costs were alleviated significantly with the introduction of MICR laser-check processing, which eliminated the need for preprinted check stock and associated post-processing, cutting payment costs by as much as 75 percent. But the sheer, growing volume of transactions made clear to government and banking industry leaders that better ways were needed to deal with the payment and post-payment processes.
The Check Clearing Act of 2003 went a long way toward solving the problem. The act, commonly referred to as Check 21, gave banks the option to deal with checks through the use of substitute checks and check images. The former is a new negotiable instrument that is a paper representation of the original check, front and back, with all endorsements. It is digitized so that it can be transmitted electronically from the clearing point, with the original then destroyed.
Check imaging doesn't even require a check to be delivered. The check is written, read by a device such as a point-of-sale terminal, and returned to the issuer. The payee is credited and the check issuer debited. Check 21 brought efficiency and cost savings to the check process, dramatically reducing handling costs as well as expediting bookkeeping on both sides of the transaction.
But the true breakthrough solution is to skip paper payments altogether, and while the complete elimination of checks is unlikely for a long time, ever more companies are moving to electronic payments using the banking industry's Automated Clearing House (ACH) system. Industry figures indicate that from just over one billion electronic payments in 1988, the number has soared to a current level of about 15 billion.
How ACH Works
The Automated Clearing House (ACH) network is not a new development, but its broad availability and usage by commercial entities is accelerating. The primary electronic payment program for businesses is direct deposit, which has been available for about 30 years. ACH is widely used and generally preferred for payroll.
Direct deposit allows a company to instruct its bank to make a certain payment to a certain account in a certain bank at a certain time. Where checks can cost $2.00-$3.00, all factors included, an electronic payment using the ACH network usually costs less than a quarter and even less than a dime in some instances. Is it any wonder that electronic payments are on a sharp upward curve?
In many cases, electronic payments must be accompanied by identifying or explanatory material: the deduction record in the case of payroll, or the invoice/remittance detail in the case of payables. There are three types of corporate ACH transactions, only one of which is capable of carrying the kind of remittance information that payments by check normally include:
•· Cash Concentration or Disbursement (CCD) does not allow for any remittance information and is typically used for intra-company movement of funds.
•· Cash Concentration or Disbursement + (CCD+) allows for one addenda record to the transfer, up to a limit of 80 bytes of remittance information.
•· Corporate Trade Exchange (CTX) allows for up to 999 addenda records, a relatively high volume of remittance information.
The CTX ACH transaction is the most favorable and flexible for corporate electronic payments, since it permits not only the movement of funds, but also the explanation of what the funds are paying for. This remittance information is inserted as a series of addenda records that can include any electronic data, including standard EDI documents (820 for financial remittance and 835 for claims).
Using this procedure, any company can convert a significant portion of its payment activity to paper-free processes, as long as it makes the appropriate arrangements with its vendor(s) and its bank(s). Internally, of course, it is important to employ an effective software solution that can streamline and simplify the payment process as well as provide optimum security and control.
In fact, while effective, the CTX option still entails hard work that can be avoided simply through the used of a universal payment platform. Universal payment platforms provide the greatest flexibility by enabling distribution of remittance advice information, separately from the deposit, by hard copy or any electronic means.
Universal Payment Platforms
In earlier stages, companies taking advantage of the benefits of ACH also experienced a downside: check runs and ACH runs required two separate processes. Universal payment platforms combine the issuance of checks, electronic payments, and several paper and electronic remittance advice options in a single payment, effectively dealing with the negatives and dramatically accelerating this critical back-office process.
At their basic level, payment operations involve multiple steps that often are performed by different individuals in different places: one to produce checks, another to issue electronic payment instructions to banks, another to generate and deliver remittance advice, and perhaps another to generate and deliver the electronic list of issued checks to the company's bank.
At the advanced level, a single universal payment platform can accommodate all of these functions in a single blended payment run. Comprehensive security conditions can also be incorporated, down to the individualized level.
The conditional distribution instruction specifies how the payee will receive their payment and their remittance or deposit advice. Payments are in the form of a check or electronic payment. Remittance or deposit advices are sent via fax or email, posted to the Web, or just mailed. At the time of the payment run, each payment and advice is automatically diverted to its designated delivery method by means of a conditional distribution instruction that is programmed into the payee's record.
This presents another opportunity for efficiency and savings. According to the ACH governing body, t50 percent of electronic payments are sent with a paper remittance at an average cost of $1.60 to print and mail. Conversely, delivery of electronic remittance advice by means of automated secure email, automated posting to secure Web sites, and even automated fax has a cost of essentially $0.
Since electronic payments require almost no human intervention, they are by nature highly secure. Additional security can be maintained through separation of tasks, with each participant in the process executing his/her function under password entry to the system, with the whole process monitored remotely by the payroll supervisor.
Normally, these advanced payment platforms are modular, enabling financial management to tackle their entire fiscal universe in one sweeping initiative or to solve their problems one at a time, building out as needs and budgets ordain.
On the Job
One of the chief benefits of universal payment solutions is their configurability, enabling companies to fit the solution to their specific needs, rather than forcing the user to conform to the system. Where one company may require a fully featured solution, another might have processes in place that it wishes to retain. Once the payment engine is in place, the foundation is laid and all options are open. The following examples illustrate how two innovative companies assessed their requirements and how they implemented systems to fulfill them.
Mohawk Paper Company
Mohawk Paper Company, based in the Hudson River community of Cohoes, entered the world of contemporary payment processing in an effort to streamline both its payroll and its accounts payable process, which involved about 1,000 checks each. The environment was not untypical: SSA Global's BPCS and Software Plus generated the payment files, which were printed on dot-matrix printers on multi-part continuous forms.
Phase one of the upgrade entailed moving to a laser check process, with the files going first to the check processing software for formatting and then on to MICR-enhanced laser printers where the checks were produced on blank security check stock in a single pass. No more post processing.
Phase two involved implementing ACH payments for accounts payable for the company's Tier One and Tier Two vendors. The company employed promotional inserts with mailed checks as well as direct telephone contact to effect the conversions from checks to ACH, and while it was a slow process at first, interest quickly picked up.
Vendors are notified at the time of payment that their funds will be available in two days, and a remittance advice statement indicating the invoices paid goes out by email at the same time.
Vendors participating in our ACH program are delighted," says Mohawk's Mike Ruhm. "Electronic payments save time, money, and other resources on both ends. Payments go straight to the vendor's bank account, and remittance advice can be send directly to the back office system for reconciliation. Mail delays and losses are no longer a problem. Vendors really appreciate the precision of this approach."
AmSurg Corporation provides consulting services for practice development, licensing, Medicare certifications, and business operations to a nationwide network of surgery centers. The company's policy calls for each center to pay its own bills and then send the data to Nashville headquarters to be re-keyed into the corporate accounting system. As the enterprise grew, it became apparent that serious inefficiencies existed. Check volumes vary by center, ranging from as few as 40 to as many as 200 or more. In one example, an employee spent two days writing out monthly checks to vendors that supplied two specialty surgery centers in a Kentucky city.
AmSurg decided to quasi-centralize the process by linking the remote centers with headquarters using Citrix. The company's SmartStream management software had payment capabilities, but they were limited, requiring preprinted check stock and the associated post-processing activities.
On the suggestion of a SmartStream consultant, AmSurg purchased and implemented a universal payment solution, initially for checks but subsequently adopting ACH payments as well.
The current environment allows the remote centers two views: SmartStream and the payment system. If center personnel simply want to make a payment, they log on and make the payment using their local office printer. If they want to process invoices, they log on to SmartStream and perform the necessary work. After the invoices are approved by their financial representative, the file is sent to the payment system, which forwards it via Citrix to the local printer.
With the success of the check system (an overwhelming percentage of the centers signed on to its use) corporate decided to activate the payment system's ACH module. Headquarters now uses ACH both for employee payroll and for vendors that have opted for the reliability and convenience of electronic payment. All employees are set up for direct deposit. And where corporate used to mail more than 100 vendor checks per week, the total is down by more than two-thirds. Remittance advice goes out by email automatically with the issuance of the check.
Best of Both Worlds
There is an old, old caution about "throwing the baby out with the bath water." In the payment universe, it isn't necessary, and in fact, we would probably advise against it. A better course is to examine solutions in place, retain what is best, and replace what can be improved.
Any company can modernize as extensively as it wishes, taking advantage of available technology and either its own or vendor resources to tailor a payment system to its own precise requirements and preferences:
•· MICR laser checks
•· ACH payments (with F-EDI capability)
•· Hard copy/electronic remittance advice
•· Any combination of the above
Once the system is in, building it out or modifying it is quick, easy, and affordable, subject only to the realities of budgets and opportunities. As indicated in the examples above, the power and flexibility of universal payment management solutions walk hand in hand to provide harmonious answers to universal payment problems.