Many small businesses rely on internet banking for their business payments – from employee wages and standing orders, through to ad-hoc supplier payments. Internet banking offers a number of advantages. It means businesses can bank more flexibly, get real-time account information and have the ability to make immediate payments. Although this makes sense for early stage businesses, it can become very time consuming as they grow.
There are limitations with internet banking. For instance, payments cannot always be scheduled in advance or batch processed. Additionally, internet banking facilities cannot integrate with incumbent payroll or accounting software, requiring duplicated data input.
Naturally as a business grows, the volume and value of payments will increase. Making a few manually entered ad-hoc payments per day might be manageable, but as the volumes start to increase, the risk of error increases too. With the increase in payment values comes the need for a secure, controlled, and auditable process too.
Additionally, depending on the nature of the business, larger suppliers may impose more challenging payment terms. For instance, in the retail industry, goods may be supplied on a commission, or on a sale or return basis. When you’re managing settlements for dozens of goods, then this can quickly become incredibly time consuming.
Growth pains and the tipping point
So the question is, at what point is internet banking no longer fit for purpose? There are a number of points for consideration and the importance of each will be different depending on your business.
In our experience and as a rule of thumb, if your business is making more than 100 payments, or collecting 50 direct debits per month, it’s likely that you have outgrown the basic payment processing capabilities that internet banking can offer. But there are also other points that need to be considered.
Few businesses want to provide internet banking access to any but the most senior financial staff; in many cases, the directors of the business. This is bizarre, as for decades businesses have allowed cheque preparation and signing to be allocated to several employees using a workflow of authorisation – not just senior managers. Yet in today’s world of internet banking, we have become fearful of this level of delegation.
As a result, senior managers are often those required to key in each payment individually, consuming a considerable amount of time which can be better spent on fee-earning activities. When this becomes a burden and it is clear it is going to impact opportunities, then a more efficient approach should be considered.
Finally, consider how at risk your business is if your bank has an outage. It’s one thing losing out on early-settlement discounts from suppliers due to late payments, but it’s quite another when your employees are likely to be impacted by your inability to process payroll payments; it leaves them feeling at risk and has significant knock-on effects for their own outbound payments and standing orders.
A direct approach
It is at this point, it might be worth considering a more direct approach where you submit payments directly to systems such as Bacs or Faster Payments.
It’s a common misconception that direct payment handling solutions are the preserve of the largest of businesses, however this is not the case. Direct Bacs is one approach that small businesses often adopt as they grow beyond internet banking.
Internet banking has become such a standard part of our lives to a point many businesses believe it is the same as a direct Bacs system. This, in fact, is not the case. While internet banking typically can link into Bacs to ensure payments arrive, it lacks the depth of functionality a direct solution can offer – crucially, the control and automation a growing business needs.
Finally, you would be forgiven for thinking that internet banking is cheaper. Since internet banking charges vary between banks, and are often hidden and may be significantly different for each customer, it is not a simple process to compare the payment mechanisms. To be able to make a true comparison, you need to review your current and future payment processing needs across the business and ascertain the true cost per transaction.
Efficiency and flexibility benefits
Direct Bacs solutions support both bulk payments and multiple payment scheduling, which allows businesses to forward plan batches of payments to multiple banks and exploit any credit opportunities.
Additionally, by going direct, payments can be submitted up to 22:30 and still make that day’s processing cycle. This can be a full six hours later than most internet banking alternatives. Additionally, if the three-day Bacs cycle doesn’t suit, the Faster Payment Service for business offers companies the ability to process an almost immediate, same-day payment. For businesses operating under a just in time model in particular, the extra hours can really make a significant difference to their finances and reduce expensive, last-minute CHAPS payments.
With direct integration into most accounting and payroll systems, payment processing no longer needs to be confined to the most senior financial staff only.
A direct solution can segregate duties to ensure that senior management is better focused on high-value activity, control and visibility whilst feeling at peace that security around user access rights and transaction limits is tight. Bank account details and ownership can be validated and ownership verified ahead of submission, limiting the number of unnecessary payment rejections and associated correction costs.
Death knell for internet banking?
So, is direct Bacs the death knell for internet banking? Well, not exactly. In fact, businesses really should have both.
Internet banking provides real advantages such as instant visibility of the account balance and the ability to make very last minute ad-hoc payments if Faster Payments isn’t being utilised.
However as a business grows, the need to maximise financial control, manage growing payment volumes and handle more complex payment arrangements and types, become more apparent. A direct Bacs solution can be a more cost-effective way to address these growth pains.
Richard Ransom is a payments expert at Bottomline Technologies.