Tuesday, 15 August 2017, London:
From staffing costs to increased regulation, investments in digital transformation and changes to the Ogden rate, insurers are feeling the squeeze in 2017. Many are looking for new ways to optimise costs. Migrating away from cheque payments to suppliers is a great way to do just that.
Cheques are an outdated, slow, inefficient and costly way to buy services and are ripe for an overhaul. The answer is Virtual Account Numbers (VANs): the perfect way to pay suppliers without any of the costs or risk attached to paper tokens.
Ripe for upgrade
Although insurers have done much to cut costs and drive efficiencies by consolidating their extensive supply chains, cheque payments have been harder to phase out. The truth is that despite all their shortcomings, cheques often seem like the best option, especially when the costs associated with validating the bank details of infrequent or one-off payees can be higher.
But let’s not ignore the fact that cheques are ripe for retirement. For the insurer, there’s the extra cost and admin resource associated with: locating the payee address; responding to supplier enquiries; reconciling cheque usage with orders and stock; bank charges of up to £1 per cheque; postage; and reclaiming payments following poor work. That’s not to mention the cost of cheque stock and printing materials, fraud, returned cheques and even stopped cheques when, inevitably, there is an error in processing.
It’s not great for the supplier either, who has to pay to bank the cheque – and get to the bank – and then wait several days for the payment to clear.
A new paradigm
Some £455 billion worth of cheques were cleared in the UK last year, with insurers writing thousands every day to pay garages for repairs, retailers for replacement goods, intermediaries for personal claims, and so on. But there is a better way to do things: Virtual Account Numbers (VANs).
VANs are automatically generated card numbers used to make supplier payments. Backed by the guarantee of card companies such as Mastercard, the system uses unique numbers for each transaction. Reconciliation is automatic and immediate, reducing overheads and eliminating manual errors.
Maintenance and validation costs, and the risk of sending money to the wrong place, are a constant concern when posting cheques to infrequent suppliers. VANs eliminate all of these problems. They can’t be forged and insurers can even personalise them by amount, currency, date and merchant, to add further layers of security and control. They provide certainty of payment for the supplier and many suppliers are geared to receiving payments by card.
It’s time for insurers to take back control of B2B payments with VANs.