1. About four out of five households pay at least one bill online through their financial institution. Overall, about one-fourth of all bill payments were completed online, up from about 7 percent in 2000, and nearly equal to check payments, which came in at 26 percent. In 2000, just over half of all consumer payments were completed via checks.
2. Additionally, about one-third of users online bill payment tools receive electronic bills, an increase of nine percent from 2009.
3. Online bill payers are fairly evenly distributed across income levels. About 35 percent have a household income of less than $50,000; 38 percent are between $50,000 and $99,999 and just over a quarter top $100,000.
4. While the largest chunk of online bill payers are between the ages of 35 and 54, 28 percent are between 21 and 34, and one-fourth are 55-plus.
5. The use of mobile devices, such as smart phones, to complete payment transactions also is growing. The percentage of online households that used a mobile device to complete one or more banking services jumped from 23 to 30 percent over the past two years.
6. While consumers of all ages are using online payment methods, members of Generation Y (those born from the late 70s to the late 90s) are, perhaps not surprisingly, some of the most prolific users. They are more likely than the population overall to use mobile banking, make payments through a biller-direct model and use personal financial management tools, such as Yodlee.com or Mint.com.

Payment tools that were considered emerging just a few years ago, such as online bill payment, now are mainstream. Judging by the interest younger (20- and 30-something) consumers have shown in today’s newer tools, such as mobile payments, these are likely to become mainstream in the not too distant future, as well.

According to this summary of the case by Greg Litster, president of SAFEChecks, and Frank Abagnale of Abagnale & Associates, Wachovia came out the winner in a lawsuit against its customer’s insurer, after the payee on one of the company’s checks – for more than $150,000 – was altered.

Wachovia’s client, Schultz Foods Company, had demanded that Wachovia cover the loss, saying it had processed the check in violation of the Uniform Commercial Code. Wachovia refused, noting that the company had repeatedly refused to implement positive pay, which would have picked up on the altered name. In fact, the company had been a victim of check fraud several times before the incident that led to the suit. Wachovia had covered those losses.

Schultz Foods also had purchased an insurance contract to protect itself against fraudulent checks. While the company was pursuing Wachovia, it also was filing a claim against its insurer, Cincinnati Insurance Company. Cincinnati did pay the claim, and then went after Wachovia.

However, one section of the contract between Wachovia and Schultz Foods proved critical to Wachovia’s defense. That was this:

“You agree that if you fail to implement any of these products or services, or you fail to follow these and other precautions reasonable for your particular circumstances, you will be precluded from asserting any claims against [Wachovia] for paying any unauthorized, altered, counterfeit or other fraudulent item that such product, service, or precaution was designed to detect or deter, and we will not be required to re-credit your account or otherwise have any liability for paying such items.”

Given the prevalence of check fraud – of the respondents to the 2009 AFP Payments Fraud Survey who had experienced payments fraud, 90 percent were victims of check fraud – companies need to seriously consider services like positive pay. What’s more, in light of the outcome of this court case, it’s likely that more banks will include provisions in their contracts that limit their liability when their customers won’t implement fraud prevention services like positive pay.

The survey found that errors and inefficient processes within AP can cost real money. In the last year, just under one-third of survey participants had foregone early payment discounts, while 27 percent had incurred late payment fees. 

What’s behind these these less-than-stellar numbers? Lack of communication between AP and procurement was mentioned by one-fourth of companies. In addition, nearly half the respondents receive more than half their invoices via paper, leading to manual, lengthier processes.

Several practices can boost efficiency. To some extent, scale matters. Nearly all the respondents that handled more than 200,000 invoices annually were able to process at least 15,000 invoices per FTE. (Of these respondents, only four were shared service centers, so these numbers probably were not a result of moving processes to a low-cost country.) Automation, such as electronic invoicing and electronic procurement, not surprisingly, also plays an important role. “Combining invoice automation with e-Invoicing and e-procurement within organizations was shown by the research to double the chances of achieving AP invoice processing excellence and maximize straight-through processing,” the company said in a release about the study. In fact, one FTE at the top 18 percent of AP departments could process 40,000 invoices annually, or ten times the amount at the bottom quarter of firms.

While many AP departments still have manual processes, at least to some extent, automation appears just about inevitable. Forty-four percent of respondents said that electronic invoices will completely replace paper-based invoice handling within the next five years.

At the same time, less than half of companies have in place written procedures covering any unclaimed property for which they might be responsible. That’s the conclusion of a recent survey by the tax and accounting division of Thomson Reuters. While the 80-plus survey participants were concentrated in the energy industry, it’s likely that the results apply to a wider range of companies.

About one-third of the survey participants either were or had been involved in an audit, and that number is expected to increase, Valerie Jundt, director of Thomson’s unclaimed property group, said in a release of the survey results. Many states are hunting for money, and may see unclaimed property audits, along with the resulting fees and penalties, as one way to gain funds. What’s more, a large percentage of companies are incorporated in Delaware – the state hosts more than 60 percent of companies in the Fortune 500 – which tends to have a higher number of unclaimed property audits than other states. Companies that fail to comply with state regulations governing unclaimed property or to file the proper unclaimed property reports also may face trouble at the Federal level under Sarbanes-Oxley, the release said.

To reduce the risk that their process for handling unclaimed property (or lack thereof) may get them in trouble, companies should develop a system for handling it and document their procedures, according to this piece in Compliance Week. They also need to file the proper forms with each state. Finally, they need to hold onto these documents forever, as no statute of limitations applies with unclaimed property audits.

Software solutions that consolidate and analyze your vendor and accounts payable data also can help you stay on top of vendor credits. What’s more, many software solutions let you automatically send queries to many vendors at the same time. To be sure, it’s not uncommon for just 15%-25% of vendors respond to an initial mailing. However, Lavante typically sees response rates grow to more than 90 percent, particularly when we combine updated data from our vendor network with proprietary communication software. At times, a second round of requests also may be necessary.

Also key to higher recoveries: working with audit firms that are experts in vendor credits. These auditors tend to be trained in collections – a skill that few accounts payable employees have had to develop. Most also have sophisticated technology, allowing them to conduct the audit with fewer employees.

For a successful audit, you’ll want to:

1. Set clear goals and time frames. You won’t have time to do everything, so focusing everyone’s efforts is key.
2. Develop reports that provide info you can use to reduce future vendor credits. As a starting point, they should provide information on the credit, the vendor’s compliance, and the age of credits as they are recovered, among other information.
3. Talk with the audit staff regularly. You’ll stay abreast of their activities and can tap into their insight.
4. Use the audit to learn what led to past mistakes and credits. Then you can implement the steps needed to improve the process going forward.

Also important in reducing vendor credits is highlighting their impact on your firm’s performance. Just as most firms measure days-sales-outstanding and days-payable-outstanding, Lavante has developed a metric for assessing days-credits-outstanding, or DCO. DCO measures your debit balance as well as the time-value and magnitude of credits that are open on your vendors’ accounts receivable records before your firm can verify the amount and recover it.

When companies fail to pay attention to their vendor credits, it’s not uncommon to find DCOs of up to 1,500 days. By consistently monitoring this area, however, it’s possible to drive down this metric to less than one month. That preserves cash flow and boosts the bottom line — which is the overall objective of managing vendor credits.

While many firms overlook these credits, doing so can cost them. “Vendor credits generally total between $600,000 and $900,000 for every billion dollars a company spends,” says Joe Flynn, Lavante CEO.

What’s more, just a few steps can help you reduce the frequency of vendor credits. To start, recognize that that the slip-ups that lead to credits can occur by both the vendor and customer. For example, a PO may omit the discount available on the transaction. Or, a company may fail to provide payment detail when sending its check, so the vendor holds onto the funds while figuring out how to allocate them.

Tracking Credits:

No matter the cause, you want to stay on top of these credits. The more time that goes by, the more likely it is that an unclaimed credit will simply disappear. After analyzing millions of data points over the past 10 years, Flynn has found that an AP department has an 80 percent chance of recovering a  credit that is one day old. Its chances drop to just five percent after 105 days.

Reducing the number and amount of vendor credits starts when setting up new vendors in your system. The data file should be thorough. Obtain the names of any parent companies or subsidiaries to which the vendor is related, as this reduces the likelihood of payments going to the wrong address and ending up as a credit. Double-check the company name, address and phone number, and make sure you’ve got the right address for the accounts receivable department; at some companies, this differs from the corporate headquarters location.

Once you’ve done all you can to make sure the data is in tip-top shape, it makes sense to restrict access to the database. This limits the risk that someone will introduce errors that cause a payment to go astray.

It also helps to periodically ask your vendors whether they’ve undergone any changes that may hold up your payments. Say a vendor merged with another company — you  may need to change the address to which you’re sending your payments. At the same time, you’ll want to verify that your vendors have accurate contact information for you. If not, their efforts to track you down to clarify a payment will be hampered.

On a regular basis – preferably quarterly, but at least annually – obtain vendor statements, recommends Mary Schaeffer, an accounts payable consultant. Because some vendors suppress credit information when they print the statements, Schaeffer also advises instructing vendors to include all activity, and not just past due amounts.

Next up: The role of software and auditing in reducing vendor credits

IBANs consist of four groups of alphanumeric characters:

a)    The country code

b)   Check digits, calculated via an algorithm of IBAN

c)    The bank code

d)   The account number

IBANs can have more than 30 characters, although not all do. The exact length is set by each country’s banking sector, and all IBANs within a country must be the same length, reports the United Nations Centre for Trade Facilitation and Electronic Business.

The IBAN is being used as the primary means of identifying accounts in Europe; as a result, international payments without IBANs often take longer. If you will be paying an organization that’s located within Europe, you’ll want to make sure you receive its IBAN information. The IBAN Registry prepared by SWIFT also provides IBAN formats for several countries outside Europe, including Israel, Saudi Arabia and the United Kingdom. At the present, the IBAN is not being used for payments within the U.S.

Not sure about an IBAN? Several organizations offer online tools that payers can use to validate the structure of an IBAN.

At the same time, international payments can be difficult to complete. For starters, 81 percent of the survey participants said that payment patterns varied from one region of the world to the next. Because just about every country has its own payments systems and rules, standardization becomes difficult, says Adam Tiberi, senior vice president of global product management with Travelex. One-fourth of respondents said obtaining confirmation of payments and/or receipts was their greatest challenge when it came to international transactions, and 20 percent cited the lack of visibility into their cross-border payments and receipts. 

While companies can use SWIFT wires for international payments, they’re not cheap. Each bank involved in the transaction takes a small cut; by the end, a $100,000 transaction could result in fees of $100 to $150, Tiberi estimates.

To be sure, some signs of progress can be seen. Europe, for instance, now has the IBAN, or International Bank Account Number, a standard numbering system developed to identify bank accounts from around the world, Investopedia writes. It was originally developed by banks in Europe to simplify transactions involving bank accounts from other countries. The IBAN number consists of a two-letter country code followed by two check digits and up to thirty alphanumeric characters known as the basic bank account number (BBAN). Currently, the IBAN is primarily used by banks in Europe, Tiberi says.

At the same time, a number of financial service providers are developing their own applications for international payments, Tiberi notes. The goal is “to make international payments as easy as ACH,” and less expensive than SWIFT, he says. What’s more, many of the applications allow payers to include documentation, such as purchase orders, with their payments. That way, both the payer and payee have a better understanding of just what a particular payment covers.

The upshot? While the international payments environment is slowly improving, “this is still an area where a lot of businesses have challenges,” Tiberi says.

To be sure, the Bank Secrecy Act focuses (not surprisingly) on banks and financial institutions, requiring them to know their customers. However, the principles come into play with corporate AP departments as well. For instance, while you may be able to head to Staples to purchase check-printing software, you’ll probably also need to mail the company to get pre-printed forms to use for the checks, or you may need to buy special ink to create the checks, Rogers says. When you do, the seller will need to check your address and identity. “Software that facilitates payment cannot be made available for download unless the physical address and/or identity of the recipient is identified and verified,” according to information on www.checkwriter.com.

In 2006, Qchex, an Internet-based provider of checks, had to halt its operations. “According to the FTC’s court filings, before September 2005, Qchex offered and sold its online check services without making any effort at all to verify that someone ordering a check on an identified account actually had authorization to write checks to be drawn on that account,” the Federal Trade Commission reported. As a result, scammers could use Qchex to appear to pay for purchases of goods or services, although the unauthorized checks ultimately bounced. They also could use Qchex in overpayment schemes. That is, they would write a check on Qchex and overpay an invoice, before asking for the difference to be wired back to them. By the time the checks ultimately bounced, the scammer had made off with the extra money.

While getting checks or payment software legitimately requires a bit more time, it still is pretty reasonable. At checkwriter.com, for instance, orders in by 2:00 P.M. can be delivered the next day, although rush charges apply, Rogers says. “It’s not burdensome.”

At the same time, manual processes within many accounts payable functions adds time and cost to the system. For instance, 30 percent of respondents said they’ve missed early payment discounts within the past twelve months, while another 27 percent incurred late payment fees. Similarly, about one-quarter of survey participants said mistakes by their customers meant their firms had not received a payment due them.

Human errors, either in AP or procurement, are behind more than half the mistakes, such as missing early payment discounts, survey respondents said. Lack of communication between the AP and procurement departments is the reason for another one-quarter of mistakes.

Perhaps because of this, a majority of companies are steadily moving to streamline their finance processes. More than half (56 percent) of the processes surrounding spending are now automated, versus 50 percent in 2009. In addition, 46 percent of indirect spending is captured in companies’ PO systems, up from 42 percent a year ago. Finally, 44 percent of respondents predicted that electronic invoices for B2B purchases will replace paper-based invoices within the next five years.