By Adrian Stafford-Jones,
The cashless society may be rapidly dawning but are UK businesses realising the benefits of electronic payment mechanisms? Organisations now have the chance to rationalise payment methods by removing expensive cheques, CHAPS and credit/debit cards from the mix and consolidating to the effective direct Bacs, bulk Faster Payments and emerging global payment solutions.
By managing these payment processes through a single payment infrastructure, organisations can impose tighter cash flow control, attain better cash visibility and accountability and drive greater efficiencies through the payment process, explains Adrian Stafford-Jones, managing director, Albany Software.
The past decade has seen an inexorable shift towards the cashless society – from the way in which consumers pay for goods and services to the way businesses pay employees. According to a report from the Payments Council, in 1991 companies paid the wages of one in eight employees in cash. In 2009 that figure had reduced to only one in 20; and by 2018 the figure is set to be just one in 50.
This shift has been driven in part by the declining numbers of manufacturing employees; but other factors, such as the increasing use of credit and debit cards in restaurants and pubs for example, have also encouraged greater numbers of employers to move away from cash wages. Historically, staff in these types of establishments would be paid in cash from the till’s takings at the end of a shift, but with increasing numbers of customers choosing to pay with credit and debit cards, this employee payment process is simply less viable.
And businesses are reaping the rewards, with feedback from employers suggesting that the cost of paying wages via direct Bacs is significantly lower than paying in cash. Indeed, while many small businesses still complain about the charges associated with credit card payments, the banks’ escalating cash handling fees are adding further impetus to the switch towards electronic payment methods.
The rise of Internet banking, the arrival of Faster Payments and the planned phasing out of cheques by 2018 are also contributing to a changing payments landscape. Indeed, Faster Payments has gained significant momentum, accounting for £294 million in 2009; a figure expected to grow to £836 million by 2018, according to the Payments Council.
There is no doubt that Faster Payments would make an even bigger impact if all the banks were involved; but increasing the threshold to £100,000 this year – and possibly higher in 2011 – will undoubtedly scoop up a larger number of the same-day payment requirements of UK businesses.
The arrival of the Single European Payments Area (SEPA) will also pave the way for faster, cheaper, global payments. While SEPA itself is somewhat limited by a lack of corporate gateway, this inter-bank standard has prompted a number of third party organisations to develop solutions to meet the growing demand among organisations for streamlined, cost-effective global payments to replace the expensive, time-consuming and unreliable systems currently in place.
Effective Payments Process
It would seem businesses now have the chance to fully embrace electronic payments to pay suppliers and wages and trade internationally. But just how effectively are organisations managing the payments process? With the ability to make bulk payments via Faster Payments there is now less need for CHAPS or the accompanying manual processes; and the arrival of new global payments solutions will transform the cost of international business transactions.
But how many companies are now actually juggling more payment methods than necessary, from cheques and PayPal to credit and debit cards as well as direct Bacs, Internet banking and Faster Payments?
There is a clear need to consolidate these payment processes. With this multiple payment approach organisations have little visibility over cash flow, limited accountability and no chance to streamline payment authorisation processes. Indeed, the administrative overheads associated with managing this diverse payment model are actually increasing.
Businesses should not rely on PayPal, debit or credit cards for anything more than the very occasional one-off payment; and cheques are an extraordinarily outdated payment method that create huge reconciliation headaches and add considerably to cash flow forecasting and management challenges.
Understanding Payment Options
So how can a business evolve these diverse and often unsuitable payment methods into a solution that is viable for business in a changing payments landscape? The most obvious answer would appear to be Internet banking. But Internet banking cannot provide the robust payment model now required. It may be fine for single, one-off payments and great for providing low cost visibility of account balances, but it is hopelessly impractical for multiple payments to suppliers or for managing staff wages.
Why should staff wait until midday to receive funds because the Internet banking transaction has to be input manually by the FD, when a direct Bacs transfer can be scheduled in advance and get funds into employee accounts by 06:00 GMT? Indeed, why should the FD have to make multiple, individual payments and have to be present for each one?
Effective payments management demands the ability to make volume payments, schedule forward payments and introduce multi-layer authorisation to reduce the onus on the FD – all facilities lacking in Internet banking.
Single Payments Gateway
Effective payments management also requires the ability to integrate all of the key payment mechanisms: direct Bacs, bulk Faster Payments, and global payments into a single, integrated payments gateway. Within a secure, consolidated payments environment organisations can put in place effective authorisation via workflow management, attain excellent auditability and achieve complete visibility of all payments and collections, enabling businesses to gain better insight into the day-to-day cash position.
In addition, reporting from this single payments gateway provides organisations with insight into payment trends which can be used to drive further improvements in cash flow management, achieve greater efficiencies and impose greater control over the payment function.
The payments landscape is changing radically. Cash is in terminal decline and the Payments Council has called long overdue time on the cheque. But to exploit the speed, cost and flexibility of electronic payments solutions requires understanding and planning. Organisations cannot simply accept being tied into one bank or assume that Internet banking solutions will provide the required flexibility, security and functionality.
With the arrival of bulk Faster Payments and global payments alongside the tried and trusted direct Bacs model, organisations now have a real chance to drive down costs and gain real control over cash flow management. But this can only be achieved if payments are channelled through an intelligent payments gateway that provides a single, secure and robust route to effective payments management.