What About Electronic Payments?

Posted by Brad Loetz on Mar 18, 2010 12:53 PM

In Part 1 and 2 of "2010 Holds Opportunity in Supplier Enablement" I wrote about the opportunity to increase efficiency and reduce cost in supplier enablement given the low utilization rate of electronic requisition-to-order throughout the North American supply chain. The Aberdeen research source for those pieces not only dealt with the order cycle but paper vs. electronic payment processes.
money_and_computerIn a former life I was a Banking Financial EDI and ACH product manager and was curious about why such a small percentage of companies that were integrated with suppliers electronically, did not do electronic payments as well. After 15 years of Integration consulting for hundreds of clients, I wonder that same thing. Are they not prevalent due to the float game, cash flow control, internal cost of capital, Check 21, awareness of the options in Financial EDI?

Aberdeen research estimates that in North America it costs 35.5% less to make supplier payments electronically versus paper payment authorization, remittance, and check. Another big opportunity to save costs, but an approach not widely utilized for some reason.

According to NACHA electronic corporate trade payments are on the rise and paper ones are falling. Also, corporations are starting to look at the integration of the procurement and payment functions. But as I look at those we have served in the past, many have not chosen to pursue electronic payment as of yet, though they have infrastructure and connectivity for it.

Similar to the procure to pay analysis, let's apply some math to the situation. If an organization has 1000 suppliers with an average of 8 orders/mo, what are the economics behind an initiative to enable all these suppliers for electronic payment?

1000 suppliers x 8 orders X 12 months X $3.29 - electronic payment savings = $315,840.

The savings are big. I guess this needs to be compared with cost of capital and how many invoice payments your organization processes a month. However, these are savings ripe for the picking.

So, are you looking for 2010 efficiency opportunities this year? Again, supplier E-nablement is a place to start.

Aberdeen research source: http://www.aberdeen.com/c/report/sector_insights/5097-SI-supplier-enablement-enterprise.pdf

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