The average paper check costs $1.22 to process, says NACHA. According to a report by MineralTree, they cost U.S. businesses between $26 billion and $54 billion a year (thanks to Ursula Librizzi at Payjunction for unearthing those facts).
?If that’s so, why aren’t U.S. corporate treasurers and CFOs rushing to electronic payment?
At the meeting, held over lunch at New York’s Soho Grand Hotel and cov ered by the Chatham House Rule, one treasurer was well aware of the high costs of issuing 370,000 checks a year, but equally aware of the cash management implications of too rapid a switch to instant electronic payments.
For a company already looking for ways to release cash trapped in working capital by extending payment terms and offering attractive supply chain finance to suppliers, moving away from checks might negate many of the hard-won gains made by that process.
Check float was just one of the ways in which stated payment terms didn’t always reflect the reality of AP processing for the corporations at the meeting. Few of those around the table were confident that their AP or shared services teams could always process incoming invoices fast enough to meet existing payment terms, even before any attempt to extend them. One newly appointed working capital manager was very clear on the need to fix broken AP processes before getting down to the business of acting on working capital.
For CFOs keen to optimise working capital, the message was clear: having a good understanding of existing processes and payment terms is an essential first step along the way to a strategic working capital programme. That means bringing in teams such as shared services and, essentially, procurement, with their detailed knowledge of suppliers and the relationships that have built up over the years.
One large manufacturer at the meeting with a well-evolved supply chain finance scheme had eventually devolved its management to supply chain managers to ensure that it was deployed when and where it would be most effective.
For those at an earlier stage, the question posed to the assembled treasury and procurement leaders was a useful one: Who leads the charge on payment terms? The answer, as ever, came in many shades rather than simple black and white and varied by industry and size of business. The broad consensus, however, was that the CFO needs to mandate the change, but that a multi-skilled team from many areas of the business is essential to its success.
Putting that team together, however, often falls to one individual with the passion and the ability to ‘lead the charge’ and it was with that person in mind that Taulia developed the Gamechangers Guide to Working Capital Optimization, which was shared at the meeting.
As Jon Barrett of Taulia remarked as the lunch drew to a close, “We find that the companies which get the best results are those that take a really strategic approach to working capital.”
*For those unused to the world of paper checks, float is the time between signing the check and having the funds leave the company’s account – which only happens once it’s been mailed, reached the recipient, been deposited and, finally, cleared..