In the business-to-business (B2B) world, checks have long been the preferred method of payment, but the rise of electronic options is changing the payables landscape. While checks still account for 40% of B2B payments‡, the Association for Financial Professionals’ (AFP) 2022 Payments Cost Benchmarking Survey‡ found that 73% of organizations are now transitioning their B2B payments from checks to electronic payments.

Given the ever-increasing pace of business operations, faster payments are becoming progressively more important to a company’s bottom line. If you’re still using checks, there are several reasons to consider a shift to electronic payment methods such as automated clearing house or commercial cards, which can meet a variety of business spending needs.

Optimize cash flow and reduce costs

Purchasing card usage has climbed steadily for years. While there are numerous reasons for the growing popularity of purchasing cards, increased cash flow is becoming a primary driver in a rising interest rate environment. The most direct cash flow benefit of paying by card stems from the extended float period built into the payment structure.

First, the digital systems supporting card programs allow for significantly better data analysis. Real-time spending data can be used to identify expense patterns on a monthly, quarterly or annual basis, which can then be used to schedule payments in advance to ensure on-time payments and to optimize cash flow throughout the year. Beyond preemptively scheduling payments, companies can track expenditures with specific suppliers or spending categories, opening the possibility of using trend information to negotiate better terms with frequent suppliers by shortening payment terms to the supplier, which maintaining payment terms to their purchasing card provider.

In addition to sophisticated data analysis capabilities, commercial cards also offer reward programs that aren’t available with other payment methods. AFP’s Payments Cost Benchmarking survey also reported that 55% of organizations receive cash back on their annual card spend — a benefit foregone by businesses that continue to pay by check.

Finally, commercial card programs also lower administrative costs by allowing companies to streamline payments and reconcile employee purchases automatically, eliminating the need for time-consuming processes like invoicing and cash advances.

Streamline payments while minimizing risk

Beyond the cash flow implications, commercial cards have other features that can benefit businesses. In addition to rebates and reduced staffing-related expenses, cards also provide cost savings in transaction fees. The median cost of processing a paper check is $3, double the cost of a purchasing card transaction.

In addition, from a risk management perspective, cards are safer than paper checks. Built-in protections such as EMV chips and payment controls that allow administrators to closely monitor and regulate card spending create a fraud risk management infrastructure that is significantly stronger than that of check security systems.

Finally, card programs streamline the payment process in a variety of ways that improve both the supplier and employee experiences:

  • Payments can be set up in advance and tracked in real time.
  • Card programs help to avoid payment-related disputes with suppliers.
  • Commercial cards simplify the disbursement of internal expenses.
  • Administrators can stay in control by establishing authorization and control parameters for each cardholder.
  • Employees don’t need to make out-of-pocket purchases and wait to be reimbursed for business-related expenses.

The efficiency, security and improved cash flow opportunities offered by commercial cards make them a powerful treasury management tool and an increasingly popular payment option. While implementing a commercial card program can be complex, a good banking partner can provide end-to-end implementation support and can remain a resource as business needs evolve.

If you are interested in learning more about how UMB can help your business as a financial partner, visit our website.

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