AFP Survey: Check use drops, but still plenty of room for efficiency gains

The Association for Financial Professionals (AFP) has released the 2022 Payments Cost Benchmarking Survey, underwritten by Corpay.

The survey looks at both external costs of vendor payments—including bank and payment provider fees, reporting, and interchange for credit cards—and internal costs such as personnel, technical equipment, IT support, and others.

Treasury and other financial professionals can now compare their costs of making and receiving seven types of payments—check, ACH, wires, credit and debit cards, real-time payments, and virtual cards—against benchmarks for similarly sized companies. This useful information can help you both identify areas in accounts payable to optimize, and make the business case for further automation.

In this year’s survey, AFP has segmented the cost of incoming payments by tender type in recognition of the idea that organizations should consider the impact to vendors when implementing a new payment strategy.

Survey Says…

Completed about 18 months after COVID-19 began, the survey reflects the acceleration of electronic payment adoption driven by work-from-home policies. The typical organization now reports processing between 500 to 999 checks per month and 1,000-1,999 outgoing payments via ACH credit. In 2015, the median number of checks processed per month was 1,000-1,999 while the ACH credit median was 500-999 per month.

Data in the survey collected from nearly 350 AP professionals confirms that paper checks are considerably more expensive than all electronic payment methods except for wires. Although the survey found high awareness of the cost of checks compared to electronic methods, 92% of organizations continue to accept them.

Survey results indicate that despite lower overall check processing, the median transaction cost for issuing a paper check ranges between $2.01-$4.00 per check

Increased efficiency was the primary reason cited for transitioning to electronic payments (92% of respondents), compared to 82% of respondents that cited cost reduction. This marks a shift in focus. The 2019 AFP Electronic Payments Survey—released well before the pandemic hit—reported that the top three drivers were cost savings, fraud controls and better supplier/customer relations. Efficiency in terms of speed and ease of reconciliation were ranked fourth and fifth respectively in 2019.

Fraud remains a top concern, with 67% citing fraud concerns as a primary driver for adopting electronic payment. Fifty five percent of organizations with revenue greater than $5 billion said the move was part of a larger workflow automation project.

Despite the new focus on efficiency, results from this year’s survey suggest that paper checks are not going away anytime soon. While nearly two thirds of organizations said they would replace paper checks with electronic payments if there was a cost benefit, 37% of all respondents said they would continue to use paper checks regardless of costs.

The report cites the ubiquitous nature of checks, the challenges of converting vendors to electronic payment methods, and legacy systems and routines as enduring obstacles to change. This thinking, along with other internal Corpay market research, suggests that many organizations remain unaware of changes in payment technology that could help them achieve greater efficiencies, cut costs, and better prevent fraud.

Our take

Card payments remain underutilized. Procurement, T&E and virtual card processing can be easy to automate because vendors often have systems in place to capture data from ERP and procurement systems. As treasury and payments professionals continue to focus on tightly managing working capital, credit cards can be a very valuable tool. Organizations should evaluate their average costs of both capital and credit, their credit terms, and the opportunity costs of not accepting cards when thinking through their larger payments strategy.

Virtual card adoption in particular is still relatively low—23% across all respondents. Virtual cards offer all the working capital benefits—including rebates—associated with traditional credit cards. But since these single-use cards can only be used by the specified payee in the specified amount, they offer unparalleled protection against fraud. Considering the focus on fraud prevention, virtual cards warrant a more prominent place in organizations’ vendor payment strategy.

The 2019 AFP Electronic Payments Survey reported that the cost to convert customers from paper checks to electronic payments was the number-one drawback to conversion. This cost was not considered in the Benchmark survey, but treasury and finance professionals are well aware of the ongoing manual labor involved in enabling vendors for electronic payment. What they may not be aware of is that fintechs like Corpay have large, cloud-based acceptance networks, enable vendors on behalf of their customers, and pay you a rebate based on the processed virtual card spend. This has enabled some organizations to transform their AP departments from cost centers into revenue contributors.

The study examined seven different payment methods--most companies use at least three, but some may use all seven, which means they’re likely running several distinct payment workflows. Those companies with multiple workflows could help increase efficiency with a payment automation solution that consolidates all payment methods into a single workflow.

Companies with annual revenue between $1-$4.9 billion are the heaviest users of wire payments due to a preponderance of international vendors. Wires can cost up to 12 times as much as a check, and companies using them not yet have a global operations infrastructure with access to local payment systems and banking partners. These companies could benefit from a payments partner specializing in cross-border payments.

According to the 2022 Payments Cost Benchmark Survey, the cost to receive a check is typically half of what it is to issue one, and large AR departments have efficient, often touchless methods for processing them. Prior to the pandemic, that meant vendors often did not feel the same sense of urgency to digitize payments.

During the pandemic, it became much easier to convince vendors to accept digital payments, since both parties were motivated to move to an electronic format while their teams were working remotely. That created a tailwind for the move off paper checks, which has been far slower than anticipated in North America. But the writing is on the wall. Streamlining your payment process and migrating to less expensive, more efficient payment methods should be your priority for 2022.