Business Miscellaneous Technology

How to Support AR with Electronic Payments

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Plenty of arguments exist against using paper checks in business, primarily due to the burden they put on accounts payable departments. Even so, check payments are still prevalent for several reasons. They’re easy to launch and universally accepted—though that is beginning to change.

Until the relatively new rise of payment automation, paying customers’ suppliers through electronic means required tremendous enablement efforts on top of figuring out data storage and maintenance processes. But, there’s another hidden reason: Checks are easy for accounts receivable (AR) to deposit and reconcile.

In a rare display of business payment support, banks have stepped up to offer lockboxes to their larger customers–often for free–in order to sell other types of services. In these scenarios, the lockbox provider receives mailed checks and deposits them to the customer’s account. Then they record the remittance data (e.g. invoice numbers, PO numbers, payment amounts) from check stubs and create a digital reconciliation file aggregating the data for each check received.

Map, reconcile, done

For banks to make this process work, some initial file mapping has to take place to enable the transfer of data into the customer’s ERP system. Once that’s done, reconciliation files send to AR through email or a secure File Transfer Protocol (FTP). AR must then pull the file and run a reconciliation process on it. The occasional item might not post because the invoice or account number was incorrect, but now you’re dealing with exceptions instead of with every payment. It’s not a truly digital process, because the lockbox provider still does manual check handling and data entry, but from AR’s perspective, it’s as good as automated.

Compare that to the reconciliation processes for ACH, card, and wire payments. If you’ve ever worked in accounts receivable, you know the number of incoming emails for electronic payments is overwhelming. There’s no standard file format for reconciliation; one might be in a PDF attachment while another is supplied directly in the email message. All the necessary details could appear in one place, or you could receive a truncated number with a request to retrieve the remaining data in an online portal. Some customers might not even send remittances for ACH or wire payments, forcing AR to match bank statements in their ERP.

Why AR prefers checks

The lack of file format compatibility makes it impossible to map remittances to a supplier’s ERP system or even develop a consistent workflow. When your team is processing hundreds of payments a day, matching each electronic payment to a remittance is painstakingly time-consuming. 

I can say with 100 percent confidence that AR would rather receive paper checks through a lockbox because it goes straight to their bank, and they only have to process one digital remittance file from their bank.

As third-party payment automation providers continue to gain market share, AR teams are seeing a heavier concentration of electronic payments. Even so, nothing has really changed from their perspective. Twenty payments issued by their customers through electronic means is still 20 payments they have to process manually.

Offering lockbox for electronic payments

The dissonance caused by this auto-to-manual problem highlights an opportunity for payment automation providers to include accounts receivable in their end-to-end solutions offerings. Nvoicepay has found success in extending payment aggregation services to a number of our customers’ suppliers. Those suppliers’ AR teams now only have to reconcile a single payment pulled right into their ERP, mirroring the capabilities of the lockbox for checks.

We all know the check game is slowly coming to an end. Many suppliers have sacrificed the convenience of lockboxes so their customers can opt for different payment methods. Some larger suppliers aren’t even accepting checks these days.

For decades, automated check reconciliation stood out as the lone sanctuary for AR professionals. However, the advent of payment automation indicates that electronic payment reconciliation is more than capable of taking up the baton.

About the author


Kim Lockett

Kim Lockett is the Director of Supplier Services at Nvoicepay, a FLEETCOR company. She has over 30 years of experience in financial services and payments, including the management of teams with accounts receivable responsibilities. Before her work at Nvoicepay, she managed the vendor enrollment team and handled customer reconcilement challenges at Comdata.