From Check to Electronic Payments: The B2B Outlook [NACHA Payments]

by Erin McCune on May 27, 2008

in AFP, B2B, Conferences & Meetings, Payables, Receivables

[This is just one of my series of posts from the NACHA Payments 2008 conference in Las Vegas.]

From Check to Electronic Payments: The B2B Outlook [NACHA Payments]

Arlene S. Chapman CTP
Senior Consultant, Technical Services, Association for Financial Professionals
Daniel W. Ellecamp CCM
Financial Consultant, California State Automobile Association
Rue Jenkins
Assistant Treasurer, Costco Wholesale Corporation
Claudia Swendseid
Senior Vice President, Federal Reserve Bank of Minneapolis

Synopsis from Conference Program

The U.S. payments system is evolving rapidly from paper to electronic payments. How is this change affecting business-to-business (B2B) payments usage, which has long favored paper checks? Industry experts from the Association For Financial Professionals (AFP) and the Federal Reserve (FR) highlight results from recent research on the current state of B2B payments and implications for the future. How much progress has been made since the FR estimated B2B checks in 2001 and the AFP surveyed B2B payments practices of its members in 2004? Adding a “real world” perspective, two corporate practitioners discuss their B2B payment practices and rationales, and offer their “color commentary” on the AFP and Fed research. Panelists cover a range of issues including: (1) key barriers to greater use of electronic B2B payments; (2) integrating the payment with other financial processes; and (3) the outlook for B2B electronic payments adoption. Panelists also offer suggestions for action to accelerate the migration of B2B checks to electronic alternatives.

My Observations & Comments

This was another very good session – with seasoned corporates sharing their views alongside industry experts from AFP and the Fed. I won’t attempt to capture all of the statistics as they are readily available from the Federal Reserve, previous presentations,  and AFP. Over all, B2B transactions make up 12% of non-cash transactions (10.9 billion) and 84% of the value ($156 Trillion). From 2000 to 2006 the number of check B2B payments declined somewhat, but not as quickly as consumer checks have declined. Cards are the fastest growing B2B electronic payments method, increasing at over 25% /year. ACH is also growing steadily, although not all B2B ACH transactions include addenda (remittance data):


Wires remain relatively flat in volume, although with the addition of remittance data in 2010 there may be a surge in usage.


Costco is gradually shifting its payments from check to ACH. Their challenge is that not all vendors have the ability to receive remittance data electronically and post it to their systems automatically. Costco makes electronic payments either by ACH or by Purchase Card. Pcards are very easy for Costco but challenging for the supplier as they have to pay interchange.

Jenkins from Costco likened corporate payment processing to a production environment in factory, just like building  a car on an assembly line. There are many opportunities to decrease waste and drive up efficiency. Electronic payments are very efficient, have less fraud, do not get lost (checks get lost), and the remittance does not get lost (like in a paper environment). In comparison, dealing with paper is cumbersome.

Costco runs checks daily today, but has considered moving to a model where ACH payments are run daily and check runs are limited to 2-3 days per week. Jenkins suggests that payment method be incorporated into the procurement purchasing and contracting discussion as each vendor contract is negotiated (or renegotiated).

At Costco Treasury advocates for electronic payment (either sending or receiving) and advises other departments (AR, AP, etc.) as they weigh alternatives.

Over time, as the Federal Reserve closes processing sites and image clearing continues to increase, the float benefit of checks will diminish, supporting the transition to electronic payment methods.

Cal State AAA

Over the last 5-6 years AAA has made an effort to transition toward more electronic payments. They tried a one card solution, but it didn’t work as well for the purchasing department. Now they use both a T&E card and a purchase card. They also send ACH transactions without addenda in many cases, but follow up wiht remittance information however the supplier wants to receive it (email, fax, etc.). They also use a ghost card via Peoplesoft.

Ellecamp from AAA observed that it is much easier to send electronic payments than receive them. They have put little attention toward AR so far.

AAA tries to be as flexible as possible in sending remittance data to its suppliers “we give them every opportunity so they cannot say no.” Ellecamp explained that by implementing ACH payment with key suppliers (glass replacement, car rental, body shops) AAA saves $100,000 a month and significantly streamlined its payables process.

When asked how he would feel if suppliers mandated sending electronic payments to the AAA AP department, Ellecamp responded “I’d love that!”

Ellecamp observes that electronic payments are “not sexy, not exciting” and that he often has to cajole other departments to change their processes. But the savings are hard dollars that continue indefinitely (for years to come) and that’s appealing.  He also advocates getting an advocate to support the cause, e.g the CFO. [I advocate marshalling the support of senior leadership, too. See more here.]

Both Costco and AAA agreed that better products from banks, particularly those that support small and mid-sized businesses will help ease the transition to electronic B2B payments.

>> Return to index of my posts from NACHA Payments 2008


One Response to “From Check to Electronic Payments: The B2B Outlook [NACHA Payments]”

  1. Small Businesses that use QuickBooks can automate the invoicing to ACH payment using third party software service like

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