Xenakis on Technology

Bill-Paying Services Follow the Money

Written by John J. Xenakis for CFO.com, Mar 21, 2001.

Electronic bill-paying services for small businesses have been around for years, but lately their appeal has grown.

For years, commercial banks have hawked electronic bill payment as a magic elixir for relieving the everyday hassle of running a small business, but they had few takers. Now that's beginning to change: A trio of service companies are convincing single-proprietor firms and other small businesses that they can make life easier for them. For example, Laurie Atkinson, the owner of two businesses, Atkinson Roofing and Graphic Image Plus, in La Mesa, Calif., pays dozens of bills each month, but she has long had a habit of losing them.

"It's just that I'm a very bad bill payer," she says. "I'd lose the bills, and I was always getting three-day notices."

Atkinson solved the problem by creating an account with Paytrust on its Web site, http://www.paytrust.com. She typed in the names and addresses of her regular creditors  the electric utility, her insurance company, credit card issuers, suppliers, and so forth. Paytrust notified the creditors to send it the bills, and it now prints and mails checks for each of Atkinson's three checking accounts according to rules Atkinson set up.

Typically, customers can specify the date of the month on which bills are paid, and set limits for each bill. Some bills are paid after the customer determines the amount of the check.

"Paytrust notifies me by E-mail when it receives a bill," says Atkinson. "I go online for a few minutes every day, and I just click on a button to pay the bills. When you have a small business, time is important, and I don't like dealing with a lot of paperwork."

For that reason, small- and medium-sized businesses' use of bill-paying services is expected to grow rapidly, according to Paul Jamieson, an analyst for Gomez Advisors of Lincoln, Mass.

"The more time business owners spend administering the business, the less time they have to perform core activities," Jamieson says. "These services give them time, and make the business more productive."

Jamieson estimates that the average small business spends $1,391 per month to receive and process payments. This includes the highly labor intensive costs of sending out and processing checks as they're received.

"Unfortunately, many small businesses are unaware that simply getting paid costs so much," Jamieson says. Using a bill-payment service can cut their monthly overhead by almost $600.

The services vary in cost, but generally speaking they charge around $30 per month for a couple of dozen bills paid, and $0.50 to $1 for each additional bill.

Richard Mafouz, a Watertown, Mass., based consultant recommends that his clients use a bill-paying service. "I do consulting for startup companies, and it saves significant time and money."

Most of the 200 or so checks Mafouz pays each month for his business, online retailer Dan's Chocolates (http://www.danschocolates.com), are handled by the service.

"There are only a few times when it doesn't make sense," he says. "If we're paying Fedex, and we're paying 12 invoices on a single check, then we have to attach documentation, so we run our own check." The service can handle checks where there are one or two invoice numbers, since those numbers can be printed on the check.

Mafouz is using a bill-paying service provided by OneCore Financial Network Inc. (http://www.onecore.com), which is a reseller for the bill-paying service originated by CheckFree Corp. (http://www.checkfree.com).

CheckFree has about 4.5 million users, and is the oldest and largest of the three services, according to Jamieson. CheckFree also has the largest number of third parties, including The United States Postal Service, Yahoo, and dozens of banks. One of its largest accounts is Bank of America, with 30 million customers.

CheckSpace (http://www.checkspace.com) is a young competitor in this market, and its clients include Edith Woodworth, owner of an exotic bird store, Birds & More, in Clarksville, Tenn. She buys as many as 30 birds each from each of 10 suppliers. The birds retail for $500 apiece.

"As soon as I put a payment in the system, the system sends the supplier an E-mail notification, and a few days later the money gets deposited into his account electronically," says Woodworth.

Like Paytrust and CheckFree, CheckSpace can mail paper checks, but it emphasizes electronic invoicing and payments. If you schedule a payment for a supplier who is not a CheckSpace member, then CheckSpace contacts her or him by E-mail and encourages the supplier to join.

There's no charge for customers making three or fewer payments per month. But CheckSpace is hoping that new suppliers will be encouraged to join the system as new customers bring in their own customers and suppliers, and subsequently use the system for invoicing and payments.

However, CheckSpace is not alone in providing for online invoicing and bill paying.

The giant of the business, CheckFree, has spent years forming relationships with hundreds of organizations to present electronic bills online, so that its bill-paying customers are able to receive electronic bills from banks, utilities, and many other businesses, and then pay them electronically.

The good thing is that once the bill presentment technology is in place, the other bill-paying services can piggyback on it, and so eventually these same organizations will present bills online to customers of the rival services. The expectation is that within five years or so, almost all organizations will be capable of presenting their bills electronically.

(This is a modified version of an article that originally appeared on Mar 21, 2001 on CFO.com at this location. )