The Great Paper Escape: Transforming Accounts Payable for the Digital Age

26.11.2024 12:00

PYMNTS.com

Paper checks continue to dominate the accounts payable (AP) landscape — a costly reality when digital payments innovation pulses through every artery of commerce. AP departments across industries remain mired in paper-based, legacy payments that erode business relationships. Suppliers increasingly demand buyer partners that ensure frictionless, timely payments. For AP teams, modernizing their payments strategy is more than just smart business — it is the difference between driving partner value and watching partners vanish.

Legacy Payments: A Mounting Liability for Businesses

Dependency on paper checks is more than just outdated. It is unleashing a cascade of financial and operational vulnerabilities that businesses can no longer afford to ignore.

Business check fraud persists at alarming levels.

Despite the widespread digital transformation, check fraud remains the most prevalent fraud threat to businesses today. According to the Association for Financial Professionals, 65% of companies reported actual or attempted check fraud incidents in 2023. Large firms faced the greatest exposure, with 72% of billion-dollar companies affected. Even smaller companies faced a coin flip’s chance of confronting check fraud, with 52% reporting attempted or actual incidents. Digital payments could eliminate these risks, yet 75% of survey respondents said their companies continue to use paper checks to conduct business-to-business (B2B) transactions.

72%

Share of companies with more than $1 billion in revenue targeted by check fraud in 2023

Traditional payment methods disrupt business efficiency.

Among mid-sized businesses in the United States, checks remain the most popular payment method. Seventy-one percent of these firms’ AP departments issue paper checks to suppliers, with 80% sending them through the mail without tracking. The consequences extend beyond efficiency. With 38% of firms experiencing payment-processing delays and 37% watching checks vanish in transit, AP’s paper dependency undermines buyer-supplier relationships and compromises business continuity.

Key industries remain tethered to legacy AP payments.

The construction industry leads in paper-check usage, with 76% of subcontractors paid this way. Real estate (21%) and retail (15%) also maintain reliance on paper checks for B2B payments. In other words, even as digital payment options multiply, sizable segments of the economy still have their B2B payments firmly anchored in the last century’s payment methods. The critical question is not whether they will modernize but whether they will remain competitive when they eventually must do so.

Digital Payments Improve Financial Health and B2B Relationships

Digitalizing payments not only enhances cash flow but also slashes costs and strengthens buyer-supplier relationships.

Digital payments can help businesses improve their financial health.

92%

of firms believe B2B transactions could benefit from digital or instant payments.

With slow, fraud-prone payments such as paper checks costing firms heavily and placing a drag on their cash flow, many are seeking solutions. Adopting faster, digital payments can help businesses boost their cash flow management, a priority for 55% of firms, according to a survey published by the Federal Reserve. The survey found that 92% of firms believe B2B transactions could benefit from digital or instant payments. These payment methods can enhance businesses’ financial health in several ways. By offering immediate access to funds and real-time notifications, faster digital and instant payments can allow businesses to reduce days sales outstanding (DSO) and recognize positive cash flow more quickly. They also improve working capital management through faster access to incoming payments. Finally, they enhance visibility into cash positions with instant notifications when funds are available.

Adopting digital payment solutions can also lead to cost savings through both increased efficiency and, importantly, better fraud prevention. According to Federal Reserve data, 48% of businesses expect to lower their overall costs by using and accepting faster or instant digital payments. Moreover, 1 in 5 say their top motivation for implementing these payments is enhanced security and fraud protection through greater traceability and control.

Digital payments also smooth the way to better customer experiences and B2B relationships.

One of the most important advantages of digital payments is that they enable businesses to meet evolving customer expectations. The same Federal Reserve survey found that 39% of businesses are turning to faster and instant payments because they want the flexibility to send and receive payments in the ways that work best for their customers. Offering digital payment options improves customer satisfaction and can lead to increased revenues and new customer relationships. Embedded digital payments, in particular, are being used to ensure a smooth and fast customer payment experience.

By embracing digital payment methods, businesses can strengthen their financial health through better cash flow management, reduced costs, enhanced customer experiences and new revenue streams. This shift aligns with the growing trend toward the “consumerization” of business transactions and positions companies to meet the demands of today’s digital-first customers and partners.

Overcoming Obstacles to B2B Payments Modernization

Businesses are rapidly shifting to a digital mindset when it comes to their B2B payments. Although challenges remain, digital payments are becoming a fundamental requirement for businesses to stay competitive in the evolving marketplace.

Digital payments adoption is on the rise.

With benefits including improved efficiency, security and B2B relationships, businesses are rapidly embracing new forms of digital payments. According to a U.S. Bank survey, 51% of companies are using instant payments in 2024, with this figure expected to rise to 80% by 2026.

The study also noted a growing interest in embedding payments into existing systems, including back-office tools and customer-facing applications. Embedded payments offer seamless integration within AP automation solutions, streamlining financial operations. Embedded payments are set to vault from 37% today to 80% in 2026.

67%

Projected growth in B2B virtual card usage over next 12 months

Virtual cards are projected to be the fastest-growing B2B payment method by global transaction value. Juniper Research forecasts that virtual card transactions will grow from $3 trillion in 2024 to $11 trillion by 2028. PYMNTS Intelligence research also indicates that virtual card usage is poised to surge 67% in the next year.

Digital transformation is within reach, but hurdles remain.

Despite these projections and digital payments’ overwhelming benefits, some businesses face obstacles in adopting new payment technologies. According to data from Hokodo, 44% of companies still have problems managing payments.

Virtual cards, for example, are familiar to 94% of middle-market AP departments, yet only 49% have adopted them. PYMNTS Intelligence finds the actual adoption rate much lower. Just 18% of mid-sized firms surveyed have utilized virtual cards in the last year. The biggest blockers of usage are a lack of understanding of how they work and a concern that their integration into workflows would be overly time-consuming. Some companies also worry that new payment methods would increase their costs. As hesitant AP teams weigh their options, their competitors are already reaping the rewards: robust security, faster settlements, automated reconciliation and strengthened supplier relationships.

The right partnership can make digital payment ambitions a reality.

Partnerships are clearing the path toward digital transformation for many companies. Emburse and Finexio, for example, have formed a partnership to offer innovative solutions for B2B payments. Finexio’s AI-powered platform aims to facilitate a frictionless shift from manual, fraud-prone processes to a secure, efficient digital ecosystem.

Paying Out: Key Moves for Transforming B2B Payments

Paper checks represent a strategic liability. While the complexity of modernizing established AP payment methods may appear daunting, the combined threats of rising fraud, payment processing costs and supplier friction make the digital transformation of B2B payments an imperative.

PYMNTS Intelligence offers the following roadmap for finance leaders ready to transform their organizations by trading paper checks for faster, digital B2B payments:

Evaluate current payment processes and identify areas for improvement.
Set clear objectives for the transition, such as reducing costs, improving efficiency or enhancing security.
Choose the right digital payment solutions that align with your business needs and cater to customer/supplier preferences, such as real-time payments or virtual cards.
Educate suppliers about the benefits of digital payments and offer support during the transition.
Partner with a proven AP automation provider.

Digital payments are writing a new chapter in B2B commerce where AP efficiency intersects with relationship capital. Are you ready to write your own story?

The transformation from paper checks to digital payments is essential for companies seeking to drive efficiency and deliver greater value through their financial operations. By optimizing, monetizing and securing B2B payments, businesses can strengthen supplier relationships and remain competitive amid the accelerating transition to a fully digital payments ecosystem.”

Ernest Rolfson
CEO

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