When I have an opportunity to speak to members of supplier organizations, there are several topics they tend to focus on. One issue is the number of portals their customers ask them to join, specifically those that facilitate invoice submission, payment or document sharing. Another is the whether they should commit to submitting invoices electronically to all of their customers. A third is deciding whether receiving electronic payment is ultimately good for their organization. Now, let’s be clear about one thing – supplier organizations do want to be paid quickly. As indicated in our 2017 Perceptions Study, 90% of suppliers indicated that getting paid faster was their most important issue when submitting invoices.
We know that getting paid quickly is of great importance to suppliers, but the real issue is how should suppliers go about getting paid faster? One cannot talk about getting paid faster without discussing the method in which payment is received. There are four general schools of thought about how to go about speeding payment. First, there is the notion of streamlining the front end of the invoice-to-cash process by implementing solutions such as electronic invoicing or some form of invoice automation. Second is the practice of streamlining the back end by automating collections or cash application practices. Third is the practice of taking early payment on outstanding invoices – whether initiated by the customer or the supplier looking to get paid. Fourth, and perhaps the greatest opportunity for speeding payments, is accepting payment electronically. Though accepting credit cards (which can be wrought with fees) or wire transfer (which is fast but also includes significant fees) are options, receiving payment via ACH is the most cost-effective.
Some believe there are potential challenges to accepting ACH payments, such as obtaining remittance data, ensuring customers are willing to pay via ACH and getting the organization up to speed to accept ACH payment. With the advent of improvements to sharing remittance data (see recent blog post: 5 Electronic Remittance Data Challenges and the Fix Companies Should Know About) and more customers being open to paying via ACH, the question then becomes: should suppliers encourage their customers to pay via ACH?
There are four realities supplier organizations should understand when moving toward having their customers pay them via ACH.
- More customers are interested in paying their suppliers via ACH anyway
When asked how customers feel about paying suppliers via ACH during a recent interview on The Savvy Report, Robert Unger, Senior Director Product Management and Strategic Initiatives with NACHA, indicated that more customers are interested in paying their suppliers via ACH. “Accounts Payable departments want to be more efficient, so ACH offers a lot of efficiencies and cost savings for AP. And, they’re trying to drive their suppliers to accept that. I think suppliers want to listen to their customers and that’s a good motivation for them.”
- Remittance data has become significantly more consistent and reliable
The days of receiving remittance data in various formats that require a great deal of time and effort to gather in order to reconcile payment are virtually over. Suppliers can receive standardized remittance data from customers by including requirements in contract negotiations and providing the remittance file requirements and formats they prefer. Suppliers may also work directly with their financial institution to receive necessary remittance data when being paid by customers.
- Getting paid electronically via ACH significantly reduces DSO
ACH credit, and, more specifically, Same Day ACH credit, can significantly reduce an organization’s DSO. Per our 2017 Perceptions Study, 54% of suppliers are paid anywhere between 30 and 90 days (7% are paid in 90 days or longer). If suppliers are committing to refining and automating processes on the front and back end, incorporating ACH payments should be part of an organization’s invoice-to-cash process improvement strategy to get paid faster.
- Advancements in technology make it easier to accept ACH payments
The prevalence of online portals developed and deployed by customers is making ACH payments easier for supplier organizations to accept. Remittance data can be easily shared for multiple payments and quickly retrieved from portals. Portals developed by third-party providers, including ERP solutions, also offer this benefit. In addition to portals and ERP solutions, advancements in the ISO 20022 messaging platform will allow for consistent, reliable remittance data to be shared between trading partners.
Although suppliers are still being paid via check by many customers, this method of payment is in the midst of a precipitous decline. As ACH payments overtake paper by 2020, more customers will offer, and more suppliers will accept, electronic payment. Discussions about whether suppliers should do it will then become a thing of the past.
Suppliers interested in learning how to encourage their customers to pay via ACH should join Receivable Savvy and NACHA for a complimentary webinar on October 30 at 2:00 PM EST titled; How ACH and Full Remittance Can Quickly Reduce DSO by Up to 20%. NACHA will walk through a host of effective strategies every supplier organization can benefit from, including reducing DSO, ensuring consistent remittance retrieval when paid electronically and more.
Ernie Martin is Founder and Managing Director of Receivable Savvy. He brings over 25 years of experience in financial supply chain management, marketing and communications and draws upon his extensive experience to share knowledge and best practices with AR professionals. He currently chairs the Vendor Forum of the Federal Reserve Bank of Minneapolis and his resume includes time at several well-known brands and companies such as Tungsten Network, Delta Airlines, CIGNA Healthcare and Georgia Pacific as well as a number of years as an independent consultant.