Do you hear that low hissss sound? Profits are slowly leaking from companies that overlook how profitability is impacted by how a customer pays, what information they provide, in addition to when they pay (DSO).
And the slow leak could hemorrhage with the coming tsunami of customer payment behavior changes, where, according to our research, B2B electronic payments will surpass check payments in 2020. It’s important for CFOs to get out in front of this sea change and develop a bulwark to contain escalating payment receipt costs. Tracking key metrics for payment receivables is a good start.
However, most companies, even the big, billion dollar plus annual revenue ones, have not implemented basic metrics for tracking and managing payment receipt costs. We here at NACHA know this, because we asked. In a collaborative survey NACHA did with the Credit Research Foundation, 75 percent of corporate respondents said they do not track payment receipt costs.
This is a missed opportunity for CFOs, credit, accounts receivable, treasury and related financial departments to further contribute to the bottom line.
When considering the “cost to serve” customers, companies are right to focus on profitability and pricing as it relates to the costs of raw materials, labor, development, production, delivery/fulfillment, marketing, sales, customer support, etc. But the associated financial costs regarding how a customer pays, what information they provide and related expenses to support customer payment choice impacts profitability too.
Measuring and managing payment receipt can lower the cost to serve customers, and increase profitability with every payment transaction. Success requires more than managing DSO and reviewing bank or card network fees. CFOs need to implement metrics for tracking “all in” payment receivables costs (e.g., costs and labor for reconciliation/cash application, exceptions/disputes, compliance, fraud controls, fraud loss, security, reporting and related services) to better understand how payment type (e.g., check, ACH, wire, card, cash) impacts profitability.
These data are powerful stuff, and should propel a coherent strategy for driving customers to the lowest cost, most efficient payment channel. With this data, CFOs can evaluate opportunities to incent (or discourage) customer payment behavior, and will know precisely how these changes impact profitability.
