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The check's not in the mail: More
companies adopt electronic payments

Direct payment of billsIf there was something that could save you time or money, or both, would you be interested?

More and more small-business owners are using electronic bill payment because it provides those advantages, but they're not the only ones who like them.

The Federal Reserve is promoting electronic payments because they help the nation's banking system run more efficiently. Banks are promoting them because such payments are cheaper and easier for the financial institutions to process.

Tom Hirz, who owns Convenient Food Mart in Westlake, Ohio, uses automatic deductions to pay his business's Ameritech phone bill and East Ohio Gas bill. He gets monthly statements telling him how much has been taken out of his account.

The mart is an Ohio lottery outlet and Hirz electronically antes up $6,000 to $10,000 each week to the state. It's the money his store has taken in from lottery customers, minus his commission.

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That suits Hirz fine. "I like paying bills that way, and I would be interested in doing it more.

"The companies push it, because they know they'll get paid. And as long as you make sure how much money is being taken out, it makes things easier for you, too."

Three flavors of systems
Electronic payment systems come in three shapes: business-to-business transfer systems, computer banking software and a bank's proprietary Internet transaction system.

For small-business owners, one of the easiest ways to pay bills electronically is to have a bank account automatically debited each month for certain recurring bills, especially if the vendor is a consumer-friendly company like an electrical utility or phone company.

While setting up debit-payment plans for certain bills won't directly improve a business owner's credit rating, banking experts say, there is the indirect credit-boosting benefit of having those bills always paid on time.

Indeed, there's little downside to such systems, experts say, as long as a business owner keeps track of what's being taken out of his account and when. Since the electronic transaction information is encrypted, electronic payment industry officials say computer hackers have caused no problems.

If you are interested in paying your company's bills electronically, find out if the consumer-oriented companies you pay regularly -- such as the electric and insurance company -- have electronic payment systems. Many companies that have huge customer bases offer such services. In most cases, the service is free, since electronic payments carry lower overhead costs and save the vendor money.

The business owner will need to give the vendor his checking account information, and agree to a payment date. After that, the bill amount is automatically deducted from the business's account each month.

Some firms not convinced
Banks say they can supply electronic payment clients with a paper trail, but the idea of doing business that way still lacks appeal for some business owners.

Landmark Engineering and Surveying in Tampa, Fla., is working on taking orders over the Internet, and employees e-mail each other all the time. But making payments online is another matter. Owner David Hurley says the idea of electronic payments "makes me nervous. I just don't know I would feel comfortable without the actual check in my hand.''

Yet, experts say, the only drawbacks to electronic payments are that they often don't offer flexibility on the payment date -- the electric company may say it has to take out your payment on the 15th of each month -- and business owners have to be careful if the bill amount fluctuates each month.

While it is not just the consumer-friendly companies that offer electronic bill payment, they are generally the only ones who do it for small customers. Direct business-to-business payment systems are set up for giant companies doing millions of dollars worth of business with a certain customer or vendor.

"Most of the companies using our services directly are companies that we call hubs, extremely large companies like General Motors or Johnson & Johnson," says Ruth Oehmig of Electronic Data Systems Corp., an electronic payment provider in Plano, Texas.

Using your own system
But the small-business owner who wants to make electronic payments is not dependent on a vendor's system. He can use his bank's Internet system, or systems offered in conjunction with money management computer software programs, such as Intuit's QuickBooks.

"These kinds of Internet payments are catching on with small businesses, with more businesses paying vendors like the package delivery company, the copier company -- companies they do business with on a regular basis," says Anne Syslo, a product manager for ACI Worldwide of Omaha, Neb. ACI sells payment software to banks and retailers.

The National Automated Clearing House Association in Herndon, Va., estimates that business-to-business electronic payments are growing at the rate of 18 percent a year. Last year, half of all electronic payments were business-to-business transactions, says association spokesman Mike Heard.

About 75 percent of the country's biggest banks are offering electronic payment services for their customers, Syslo estimates. Most offer a special Internet banking service for businesses that is similar to the service they offer individuals. They include Bank of America, First Union, Wachovia, Bank One, Chase Manhattan, and Wells Fargo.

In many cases, the bank system offers the user choices on how to pay the bills: Everything from automatic payments that resemble the debit systems of electric and phone companies to an electronic system that can be used like a checkbook.

Costs similar at big banks
The cost is fairly constant among the big banks. For instance, First Union's business payment service is $19.95 a month, which includes up to 20 bill payments a month. After that, each payment costs 50 cents. At SunTrust, the cost is $15.95 a month for 20 payments a month, and 75 cents per transaction after that. And Bank of America, which has different programs around the country, offers similarly priced services. For example, its Florida customers pay $14.95 a month, which allows them 20 payments. After that, the cost is 50 cents for each payment.

"You can't really compare the cost of electronic payments to those associated with a regular checking account, because the electronic service offers an entirely different platform for the payments," says Gordon Turner, a spokesman for Bank of America in Jacksonville, Fla. "You could obviously be charged less to pay bills the old-fashioned way, so you have to decide if paying electronically -- which assures that your bills get there on time -- is worth paying another fee."

Often, the first month's service is free, so business owners can try it out to see if it's useful.

Of course, like anything else in the world of business banking services, the fees can be negotiable, banking experts say. For instance, if a bank is interested in getting your business, you may be able to obtain its Internet banking services at a reduced rate -- or even free.

"Much of the cost for a system will depend on what type of paper trail you need to have related to the transactions," says John Cump of Phoenix-Hecht in Research Triangle Park, N.C., publisher of the Blue Book of Bank Prices. "The more paper records required, the more the fees."

When your bank's not connected
Most of the major banks are using payment services that work through Intuit's QuickBooks software. Vicki Anderson, assistant vice president in the Federal Reserve's retail payments office in Miami, estimates there are 3,000 financial institutions offering such services. Yet you might be doing business with a bank that isn't.

If your bank doesn't offer an Internet payment system or you don't want to work through your bank for some reason, consider working on your own with the QuickBooks software. A basic system can cost as little as $9.95 a month for 20 payments. An extra 10 payments is available for $5.95. The QuickBooks Web site offers more information about this option.

Anderson encourages small-business owners to talk to their bank and see what types of electronic options are available. Not only can a business owner make payments this way, but he can also set up a system to receive payments electronically by debiting customers' accounts.

In setting up an account, you must decide how much control of the process you want to have. If you want the money simply taken out by certain vendors, you can do that. But if your cash flow is unpredictable, you may want to be able to use the system like a checkbook since most debit systems lack the flexibility to give you safeguards if a debit is going to put you in the red.

Kyle Parks is a freelance writer based in Florida


-- Posted: June 21, 1999

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