Connected payment networks: Trading the time warp for the fast track

For many finance teams, the payment experience still feels like a time warp: A digital payment file is created in an ERP system, turned into a physical check, mailed across the country, then converted back into digital data so it can be cleared, posted and reconciled.

That “digital-to-paper-to-digital” loop can add cost and increases risk, especially when the payment is essentially un-trackable once it enters the mail stream.

In a recent Strategic Treasurer webinar on connected payment networks, Deluxe expert Steve Buchberger and host Craig Jeffery explored what this means for treasury modernization. Hint: it’s all about improving connectivity.

Most organizations are still only partially connected

Of the over 250 webinar attendees (most of whom worked on treasury, payables and receivables teams), only 15 percent noted that their payment systems were fully connected with real-time data flow. The majority described an in-between state of being partially connected with some automation, while 12 percent still operated with mostly manual or siloed processes.

That “partially connected” middle is where straight-through processing breaks down. A portion of transactions may flow cleanly, but the moment an exception hits (think paper checks, incomplete remittance, address changes, missing status, or manual cash application), reconciliation becomes a labor-intensive, after-the-fact exercise.

Root cause: The “black hole” between send and post

When traditional payments are being processed alongside digital ones, there exists a sort of black hole: a place where payments can lose visibility, time and control. More specifically, it’s the gap between when a check is sent and when it finally shows up on the other side. Part of this is due to wildly variable mail delivery timeframes (ranging from days to weeks) with limited tracking under normal first-class mail. This can result in friction between buyer and supplier, not to mention late-payment risk if items are lost or delayed.

“The cost of postage and handling, the manual data entry, the potential errors — those all create extra cost,” Jeffery said. “It's been the way of doing business for so long, but every payable is someone's receivable. And the more manual it is, the more steps there are.” The sheer number of physical touchpoints needed to process paper payments increases the chance of error and delay — essentially the opposite of what treasury teams need for predictable cash positioning.

What connected payment networks do differently

Connected payment networks are designed to reduce the friction created by disconnected systems and paper handoffs. How? Digitization.

Here’s an example: A business generates a B2B payment file from its ERP, but instead of printing and mailing checks by default, the file enters a commercial payment network. A directory of lockbox addresses helps determine whether a payee can receive a check and remittance digitally. When the payee is “in-network,” the check can be delivered as a digital image with associated remittance to the lockbox operation, allowing the supplier’s posting and clearing workflows to stay digital and more automated.

“When you send [the payment,] you can have higher confidence in the delivery of that payment in a predictable time,” Buchberger noted. “And for the supplier, that also leads to better cash flow management.”

This approach is powerful because it improves outcomes without pretending checks disappear overnight. In other words, the modality may still be “check,” but the workflow becomes more like a digital process, e.g., faster, more consistent and easier to reconcile.

Reconciliation, visibility, security: How connectivity helps

When attendees were asked which benefits of connected payment networks were most valuable to them, 74 percent responded with faster reconciliation and reduced manual work; this was followed by improved visibility into payment status and cash flow (65 percent) and enhanced fraud detection and payment security (61 percent). Lower total processing costs (33 percent) and better cross-functional collaboration (28 percent) mattered too, but the common message was clear: finance teams want fewer exceptions, clearer status and less exposure.

Also clear is the path from these priorities to straight-through processing. When payment and remittance stay digital, systems can exchange data earlier and provide a more auditable trail.

Connectivity is an end-to-end issue

Attendees were also asked where improved connectivity would help the most: in treasury, payables, receivables, or all of the above. The answers were weighted fairly easily across all areas, with the largest share (38 percent) saying all areas equally.

Connectivity benefits everyone in the payments lifecycle with shared data and visibility across functions. Why? Better information flow helps AP by reducing supplier inquiries and reissue work, helps AR by improving cash application and reducing exceptions, and helps treasury by improving predictability and timing control.

Modernize the “last mile” in the payments workflow

In many B2B environments, checks can be considered the last mile of payments.

“As long as I've been in the industry, there's been talk of the check’s demise,” Buchberger concludes. “But they’re still a very predominant form of payment. A way to drive efficiencies is by keeping that check payment digital… and bring the payer, supplier and buyer closer together through a connected network which improves the straight-through processing on both sides.”

Connected payment networks offer a practical way to remove time, labor, and risk from that last mile by keeping payment and remittance information digital. For the “partially connected” organization, this can be an actionable path to straighter-through processing without waiting for a future state where every supplier is ready to move to a single rail.

For leaders looking to create more connectivity across finance teams, start by identifying where paper and disconnected handoffs are driving exceptions in AP, AR and treasury workflows. From there, prioritize improvements that increase visibility, reduce manual reconciliation and strengthen security.