It is ten years since Bacs customers had to start upgrading to Bacstel-IP to achieve improved security and speed of access; and the vast majority have not even considered the solution since. But so much has changed over the past decade. From new payment mechanisms such as Faster Payments and the Single Euro Payments Area (SEPA), to new deployment models, including the cloud, and the shift towards straight through processing, there are now significant opportunities for reducing costs, improving control and transforming cash flow.
As the UK begins to gear up for growth, Richard Ransom, Product Marketing Manager, Bottomline Technologies, calls on UK business to take another look at their payment strategy.
Ten years ago Business to Business payment options were pretty limited. Cheques dominated, with 668 million cheques issued in 2002 compared with just 308 million Bacs payments, according to the Payments Council UK Payments Markets 2013. At that time, organisations only had the option of 3-day Bacs payments or expensive CHAPS transactions for high value, same day payments. There were very limited opportunities to access the SWIFT network to process overseas payments and Internet banking was only just being considered.
Today, the use of cheques for Business to Business has dramatically declined. Just 247 million cheques were issued in 2012  (compared to 3.4 billion Direct Debits and 2.2 billion Bacs Payments in the same year), and immediate payments can now be made via the Faster Payments Service. Indeed, there were 811 million Faster Payments in 2012 – an increase of 54% on 2011 . The international payment landscape is also changing fast. Corporate connectivity to SWIFT is now encouraged and well established, opening up a raft of streamlined global payment options to businesses of every size; and the introduction of SEPA in 2014 will make it possible to process payments within the Eurozone for the same cost per transaction as domestic payments.
Indeed, the whole banking landscape has changed. Post credit crunch, organisations have moved away from consolidation towards creating multiple bank relationships to reduce financial risk, creating a reliance on multiple propriety bank interfaces that do not share common standards. The introduction of the Current Account Switch Service in September 2013 has shown that personal customers are much more willing to shop around for bank accounts. In the first week of operation 35,000 customers switched banks . This new service relies on and requires companies that are Bacs Service Users to check their Bacs return reports and update their customer, supplier and employee records much more frequently than they have before.
The Bacs service has improved too. Direct Debit (DD) reporting has been enhanced and the introduction of DD Indemnity Claim Automation (DDICA) provides an opportunity to streamline processes; as does widespread adoption of the Automated DD Instruction Service (AUDDIS). With a shift in customer attitude, signing up online or via the telephone is now standard, removing the need for expensive and time consuming paper based DD instructions.
Most significantly, the way payments software is provided has changed fundamentally. There is no longer any need for a dedicated Bacs terminal accessed by just one individual. Using thin client solutions and, increasingly, cloud based deployments organisations can improve the integration of payments processes into back end finance and ERP systems and gain faster access to in-depth reporting.
This is a fundamentally different, more efficient and effective payments model. And while it was perhaps understandable that organisations made limited changes during the recession, by failing to keep up to date businesses are missing out on measurable opportunities to reduce costs, streamline processes and improve control.
The manual Bacs processes still in use in many organisations are time consuming and inflexible: reports on files to be submitted must be printed, handed to the Financial Controller, checked, signed, handed back and then submitted via the dedicated terminal. In contrast, by using the latest payment solutions the entire process is streamlined and automated, with email triggers to the Financial Controller prompting them to check and approve the submission file on screen. Payment files can also easily be searched, checked and approved from any location. Files are auto-submitted to Bacs, full audit trails are available and authorised users can access reports immediately.
There is no need for a dedicated PC; no reliance – or over reliance – on a single individual to handle the payment run; no need to create separate solutions for Faster Payments or any other payment method; and it is fundamentally both more secure and more usable. With a single solution that can support Faster Payments, SEPA payments, SWIFT access and cheques, the business has complete, up to date cash flow visibility.
For organisations reliant on aging Bacs solutions, there is also likely to be no disaster recovery (DR) in place, since this was rarely considered an issue ten years ago. But what happens if your Bacs payment process fails and the Financial Director is not available to issue cheques or the payments are time critical, such as payroll? The banks, sadly, are not geared up to provide a workable, cost effective alternative: the only choice is to make CHAPS payments, typically costing more than £15 per item, which is a massive cost to incur to handle the payroll or supplier payment run. If you are collecting via Direct Debit, the consequences can be worse, as there is no alternative payment method, and failing to collect on the correct date can impact cash flow and possibly lead to indemnity claims.
The changes to payment mechanisms that have occurred over the past decade have enabled true lights out processing, removing the need for any manual intervention. Payment processes are increasingly integrated with ERP and finance solutions to streamline Accounts Receivable (AR) and Accounts Payable (AP) functions, exploiting electronic invoicing and automated reconciliation to achieve significant cost benefits.
DD bank account validation and verification at the point of entry radically reduces the opportunities for fraud, whilst also minimising the mistakes that delay payment and create additional administrative costs; while data encryption has ensured payment security keeps pace with the evolving threat level.
In fact, any organisation that is still using the same desktop Bacs solution deployed ten years ago is not only missing out on opportunities to automate and streamline, but is also relying on a piece of software that is behind in technology, functionality and compatibility.
Change the way you think about Payments
With financial transactions forming the lifeblood of every organisation, no company can afford to take payments and collections for granted.
Those organisations that have survived over the last ten years are now looking up and exploring growth. It is therefore essential to put in place better control over the entire payments process. Why employ dedicated individuals in each department responsible for handling payments? Why rely on manual processes for approving payments; and manual processes for reconciling payments across the business to understand the cash position?
This model is inefficient and high risk. It is also constraining the business' ability to exploit new payment mechanisms effectively, from Faster Payments to SEPA, and preventing the adoption of automated solutions such as AUDDIS, even lights out processing, that can reduce costs significantly.
As the economic signs continue to improve, the introduction of a more flexible, efficient and secure payments infrastructure can provide the end to end cash visibility that will be key in minimising risk, driving down costs and managing business expansion.
Payments Council UK Payments Markets 2013
2 Payments Council UK Payments Markets 2013