Industry Insights for Remittance Processing

Below outlines related thoughts from a variety of sources as it pertains to Accounts Receivable (A/R) and Remittance Processing. We hope you’ll find it informative as well as thought provoking. In our research a few themes emerged. First, paper checks are not going away any time soon. While electronic payments are growing, the decline of checks is minimal. Thus, the ability to handle paper and electronic payments efficiently is critical. Second, new technology is creating more efficient ways to handle the A/R process, yet this fact has been slow to make it into the mainstream. This is primarily due to the third trend; wholesale lockboxes are slow to react. Keeping pace with technology requires one of two things, investing heavily in new systems, or automating the process in-house and thereby taking a portion of revenues away from the antiquated bank lockbox system currently in place. Finally, the impact of improving the visibility into your collections process can have benefits beyond simply cost savings to improve the bottom line for the company.

The Value of the Check

According to the Association for Financial Professionals, 74% of all business-to- business payments are made by check regardless of the banking industry’s initiative to move to electronic payments. While this may surprise some, Executive Vice President at U.S. Bank, Tom Rea was quoted as saying, “It is safe to say the industry as a whole may have underestimated just how valuable the check is – not the paper itself, of course – but the information rich payment system built around the check.”₁
So what accounts for this popularity?₂

• The speed of a check; it is the only payment method that can be cashed immediately upon receipt
• The amount of information contained on a check, it is the most detailed payment type available
• The existing infrastructure
• The investments made by banks over the years to ensure the system works and works well
• The inherent safety of the check; it has the most fraud controls in place
  

Based on the 2007 payments study by the Federal Reserve, the value of checks paid has increased since 2000 while the volume has dropped. Interestingly, as electronic payments are growing, only 24% of those new transactions are replacing checks, pointing to e-payments as growing the“market”, not simply replacing checks.₃ A recent “Alternative Payment Methods” survey conducted by the Credit Research Foundation (CRF) found that 100% of respondents indicated that they accept paper checks as a form of payment, and nearly two thirds said that paper checks account for more than 75% of their payments received.₄

The Requirements for Consolidated Receivables

Additional findings from the study revealed that while nearly half of those surveyed are planning to implement EIPP (Electronic Invoice Presentment & Payment), more than a third plan to make no changes whatsoever. While the payment landscape is evolving, it is doing so at a glacial pace. Paper checks will continue to dominate as the preferred payment method, especially in the business to business arena, but there is the need for developing products and services that accelerate receivables turn and create greater efficiencies in the process of making commercial payments.₅ The ability to handle both check and electronic payments efficiently is going to be vital for companies for the foreseeable future. As noted, “It is true that the paper check was conceived in a different age…but as long as the check continues to serve the needs of companies and consumers, the value of the check to the U.S. economy is not declining, but growing.”₆ Celent points out that companies are increasing their use of e-payments, but the pace is extremely slow, encumbered by inertia as well as lack of integration between accounting/ERP systems and payment systems, inadequate dissemination of standards, lack of e-financial supply chain prioritization and/or resources (IT, human, and financial), and insufficient bank-provided services.₇

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