Monday, March 19, 2018
Checks have long been a preferred method of payment by businesses large and small. A 2016 report by the Association for Financial Professionals found 94 percent of businesses still use checks to pay major business partners. But change is occurring. Whereas 65 percent of payments by businesses to major suppliers were made by check in 2007, that share had fallen to 41 percent by 2016. Eighty-three percent of businesses in 2016 also used ACH credits to pay at least some trading partners, according to AFP; 24 percent used ACH debits, 79 percent paid by wire transfer and 48 percent made some B2B payments with purchasing cards.
The AFP’s research put the mix of payments received by businesses from major trading partners in 2016 at: 39 percent checks, 33 percent ACH credits, 5 percent ACH debits, 16 percent wire transfers and 2 percent purchasing cards. (Slim percentages of businesses use other payment methods, such as traditional credit cards, for sending and receiving B2B transactions, the AFP reported.)
Many experts attribute business preferences for checks to cash management systems and processes that have long been in place to support check payment exchanges, like paper-based invoicing and receivables management. NACHA’s Request for Payment program offers an alternative to paper billing statements that leverages a payment messaging network many businesses already use: the ACH.
“Businesses today are looking for ways to effectively and efficiently manage complex payment and cash application processes in our changing global environment,” said George Throckmorton, Managing Director of Network Development and Strategic Alternatives at NACHA. The new Request for Payment program responds to that demand with an EDI standard that supports invoicing. (The automated clearing house [ACH] supports EDI payments through existing messaging formats like CTX which was developed to handle transmission of payments with corresponding remittance details.)
The new NACHA program relies on ISO 20022, an international EDI standard for financial transactions. As the Federal Reserve noted in a paper published in 2013, ISO 20022 “has emerged as an enabler of a single, common ‘language’ for global financial communications that can assist organizations in responding to evolving demands.” Building a consensus around the use of ISO 20022 has been a key consideration in the Fed’s faster payment initiatives.
The new NACHA program is available to any business that wants to use the ACH to send invoices, regardless of payment method used to satisfy those invoices. “Although the Request for Payment invoice does include payment instructions, the rules and guidelines do not include payment message standards. Payers have the option to send any B2B payment type” a NACHA spokeswoman explained. Businesses wishing to participate in the program can download the Request for Payment rules from NACHA’s website, www.nacha.org, and must reference the rules in trade agreements.
Throckmorton said adoption of the new messaging format should help businesses improve receivables processing, which in turn should help them save money. The program means “businesses can leverage an ISO 20022 message to standardize invoicing and payment collection, and automate the cash application process, as remittances can flow with the payment to support straight-through processing,” he said. “And with the ACH network’s connection to all financial institutions and thus all accounts in the U.S., through the program businesses can expand their reach and better support existing and future customers,” Throckmorton added.
Straight-through processing (commonly referred to as STP) has attracted significant attention from businesses, particularly large and mid-sized corporations eager to improve cash flow through greater automation of billing and receivables processes. The end game is to facilitate corporate treasury transactions from start to finish with little or no human intervention.
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