When it comes to payments, it’s a fast-moving and treacherous world. The move from paper to digital seems to bring a new payment system every month, and choosing which one to invest in and prepare for has proven to be an imprecise science. The payment information that you and your suppliers hold poses risks because, by its very nature, it is highly valuable for hackers and other cyber criminals.
Conversations with clients suggest that one of the biggest challenges faced today by North American corporates and their treasury departments is balancing these issues in the management of business-to-business (B2B) disbursements. The challenges, which are varied and constant, include the following:
- Payment options: What payment method for your suppliers has the best balance of speed, cost and ubiquity? Are you set up to pay your suppliers in the same way?
- Acceptance: What methods will your suppliers accept? When there is a hodgepodge of methods accepted by your suppliers, what does that mean for the cost and efficiency of your disbursement operation?
- Remittance: Do your payments contain enough information to process quickly and efficiently? In addition, is the remittance information held securely enough to prevent fraud?
- Traceability: After you make a payment you assume everything is fine, but after 30 days, if a problem happens, will you be able to trace the payment and identify where the problem occurred?
For new suppliers, all of these issues can be laid out in the terms and conditions of the contract. However, for long standing suppliers – of which there could be hundreds for some large companies – the terms and conditions vary wildly from one to the next. Standardisation is a tough goal to reach.
Available options
So what are your payment options for suppliers and what are the issues associated with each of them?
Surprisingly, cash is still very common in the US, especially for small business. For example, a retail distributor that delivers its product to a gas station may often be paid in cash. While this makes sense in some ways, cash creates problems – notably the need for dual control and security precautions for the individual. Reconciliation is another headache. A typical retail distributor has many delivery drivers and so reconciling cash to the driver of each route is not straightforward.
Cheques are an option, and one that is still widely used despite the many digital payment options available. However, cheques are expensive to generate, slow to arrive and easy to steal from the mail and counterfeit. Often they get lost or are never deposited, so you have to manage cancellations, voids and reissues.
Automated Clearing House (ACH), the electronic network for financial transactions in the US, is quick and it is cost-effective but presents fraud mitigation challenges with maintaining a routing and transit number (RTN) and account information. You need this information for every payment, so you need to retain it, but also protect it. You also need to have controls in place if the supplier changes banking relationships. When a supplier moves from Bank A to Bank B, how do you know all the new information is the same supplier and not a fraudster?
Another viable option is card acceptance by suppliers. The benefit for suppliers is that you can issue a one-time virtual card number for a specific transaction for a specific amount – very simple, while the rebates that you may get from card payments are, of course, always welcome. The challenge is that some suppliers might not accept card payments, and the remittance information doesn’t always flow easily, which makes traceability more of a challenge.
The conundrum is in the move from paper-based payments to electronic-based payments, but how do you get the universality of a cheque but with speed, cost and security of electric payments?
There are now faster payment initiatives that can help resolve the payment problems so many US treasury departments face. The Clearing House (TCH), a banking association and payments company dating back to 1853 that is owned by the largest US commercial banks, is developing a real-time payments initiative that will allow a supplier to electronically request a payment using tokenised data for the company.
Upon receipt of this request, the buyer can decide if it will authorise the payment to the supplier. Crucially, the payment will be traceable, but there will be limited sharing of payment information credentials between the two parties, thereby mitigating the need to protect routing transit number (RTN) and account number details.
Because you need to have a partner on both sides of the transaction, the system will require a critical mass of users to operate with the universality the industry requires. However, the challenges that the TCH system hopes to solve – those of payment options, acceptance, remittance and traceability – mean that a possible solution to the problem of paying suppliers in the age of cyber threats and digital payments may soon be here.