Friday, March 18, 2011

Why Do Checks/Cheques Still Dominate B2B Payments in North America?

You have heard this theme from me before, and it was triggered again when I read a post on Finextra by Matthew Dragiff, "Why do checks still dominate B2B in NA?". In it, he suggests that IT and the need to develop a business case for a project such as electronic payments stops any change in its tracks:

The mantra, “do more with less” pervades today’s business climate, and companies increasingly struggle with how best to allocate limited resources so they have the most impact. The elimination (or reduction) of paper checks is perceived as requiring system changes for which a business case must be developed and funding approved long before projects can even be considered for the IT development roadmap.
My personal opinion that the paper check, and the vague attempt at electronic payments (by printing paper checks - ha!) needs to just go away. Despite this, I am never going to suggest doing a big expensive project without a good business case. This is nothing to do with today's business climate though. IT constraints have alway been a block on producing highly polished solutions in the US, compared to what I was familiar with in Europe. 

When I first arrived in the US to do professional services and sales engineering for an enterprise software company (8 years ago), I was surprised at the difference in the style of enterprise software implementation projects between the territories. I had the definite feeling that US companies were happy with "just good enough". This mostly translated into projects with a lot of rough edges, software that with little customization for the end users, and anything at the end of a business process (in this case check payment) being swept up by a mass of available labor.

The question was asked, "why would I pay for integration when humans could do the job more easily?". Fair enough. Its hard to get past that when you are building a business case, and it doesn't matter how many less quantifiable attributes you throw at the argument, like:

  • reduced risk of fraudulent payments
  • reduced risk of errors
  • easier tracking of payments within a full bank-reconciliation process
An ROI is an ROI, and there was definitely the view that automation was not needed around the edges of processes. And frankly the banks didn't make it much easier. With little option but complex sounding ACH / wire services, nobody but the specialists even considered it. And the cost per payment does not seem to be going down, and is still much higher today than using paper checks.

So, although Matthew says that ERP systems can handle this stuff easily, via middleman services, its not the cost of IT that is going to be the block, but the cost of paying your bank and a middleman for making each individual payment. Costs have been shifted, but they have not gone away.

A post from the Improving It blog

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