2020 has been a tumultuous year, and its full impact won’t be understood for some time. One thing that’s abundantly clear is that this period of unexpected change (like others before it) is proving to be a powerful catalyst for innovation.
Just as COVID-19 accelerated consumer use of digital payment methods, we anticipate that in 2021, organizations will fast-track innovations within their own business models to incorporate efficient, digital, real-time payment tools and products. To gain synergies from the adoption of new technologies, adapting processes in an ever-evolving digital economy, Canadian businesses have the opportunity to embrace a shifting market.
As the payment process becomes increasingly digital, operational efficiencies will naturally follow. Straight through processing will become the norm, eventually replacing manual processing and reconciliation
The idea of waiting days for a cheque to clear or, an EFT to process, will feel as limiting as the idea of relying purely on personal cheques for buying groceries. Routine business payments like supplier payments, payroll, benefits and expenses will have the option of being processed in real time, and coupled with rich remittance information to streamline record keeping.
The future of business payments is taking shape, and it’s fast, reliable, secure and efficient.
Faster business payments are already starting to deliver benefits to businesses of all sizes, from one employee to tens of thousands. Increased access to cash flow and straight-through processing ultimately has a halo effect within the economy at large. Why is this so important? Current payment processing methods (which include cheques, paper invoices, cash, electronic funds transfer and other traditional methods) are costing Canadian businesses an estimated $3 to $6.5 billion per year, according to Payments Canada. If even a portion of these payment processing costs are reduced, it represents a large potential savings for Canadian businesses.
Improving business efficiency
As owners, managers, bookkeepers and accounting professionals can attest that embracing alternatives to cheques, EFTs and other payment methods can boost efficiency:
Paper invoices: Figures vary, but estimates of the true cost when an accounting department processes and reconciles a paper invoice run as high as US$53.50.
Cheques: The true cost of processing a cheque is $15, according to a 2018 Payments Canada report. Yet despite concerns over cost and speed, cheques are still the most widely used method for many types of business payments: Fifty-seven per cent of Canadian corporations reported that they still use cheques for payments, including 71 per cent of small- and medium-sized businesses.
Manual reconciliation: Right now, accounting softwares, online banking, and other systems don’t yet “speak the same language.” As long as this remains a barrier to streamlining, there will be siloes between different payment activities, including accounts receivable and payable, payroll and expenses that need to be manually reconciled.
Canadian businesses are ready for faster business payments
Earlier this year, decision-makers in businesses across Canada confirmed these sentiments and more in an Interac survey.** They’re frustrated with payment and account reconciliation processes lacking efficiency, timeliness and transparency, and they wish better software integration were possible.
Forty-six per cent of those surveyed agreed that reconciling payments is time-consuming, and a roughly equal amount (45 per cent) acknowledged that many payment processing activities — for example, writing cheques — can be tedious (which will not be a surprise to readers who work in AP and AR departments).
How faster digital business payments will power the digital economy
The alternative is a smoother, more efficient future for Canadian businesses, whether they are a sole proprietor or employ 10,000. As they’re able to adopt digital solutions for their payments in the coming years, Canadian enterprises will strengthen their competitive position in the economy in a number of ways:
Real-time payments: Real-time payments offer a number of advantages to businesses of all sizes. For businesses that need to send payments on short notice, the current cost of wire transfers can be an issue. Fast payments can also lead to faster customer service in the form of rebates and refunds, for retailers large and small.
Improved cash flow: With faster payments, businesses are better able to manage and leverage their cash flow, thanks to increased payment processing speed and predictability. When working capital is freed up sooner, businesses benefit from efficiencies in cash flow, manage fast and predictable cash flow and the ability to take advantage of just-in-time payments — no more waiting for cheques to clear or EFTs to process.
Higher limits on digital transactions: It’s easy for most Canadians to imagine what this would look like – Interac e-Transfer® is used daily for everyday transactions like rent or paying your gardener. With enhancements that optimize it for business use, organizations can tap into the same convenient experience but with the ability to send much higher amounts — reducing the need to mail a cheque.
Rich remittance data: ISO 20022 standards enable everything from automating routine payment processes such as account reconciliation to settling all employee payroll, expense reimbursements and bonuses in real time.
More environmentally friendly: Invoices that can be reconciled, along with the payment, don’t require a separate paper trail — which also means they don’t require paper!
Finally, in the big picture, as businesses gain alternative payment options that increase efficiencies, it will free them up to reinvest those resources more productively — which will benefit consumers, governments and Canadian society at large.
** The Interac Commercial Payments Research: SME Survey was an online survey of 561 financial decision-makers and influencers in Canadian small and mid-sized businesses recruited via an online research panel, and was conducted between May 5 and 21, 2020.