One of the things Michael O'Callaghan has learned is that it's sometimes easier to move goods than money. Today's trucking and freight systems can transport products across the world in a matter of hours or days, while business-to-business payment systems process invoices and grind out checks over weeks or months. "There are incredible inefficiencies in dealing with paper. Electronic payments offer a less costly and more efficient alternative," he says. O'Callaghan knows what he's talking about. The director of corporate and financial systems for Green Bay, Wis.-based Schneider National Inc., the largest truckload carrier in the U.S. (with 1999 revenues of $3 billion), has helped guide his company into the fast lane for electronic payments. Today about 80% of its bills from business partners, including independent trucking firms, are paid via electronic funds transfer. A Lawson Software enterprise resource planning (ERP) system automates the entire process for more than 14,000 vendors. In addition, 40% of accounts-receivable payments have gone electronic. "The system has become an integral part of our e-business strategy," he explains. Despite all the talk about e-commerce, many companies still find themselves chewing on paper and manual systems to manage bill payment. According to IT consulting firm GartnerGroup Inc., Stamford, Conn., only about 14% of B2B payments and 8% of invoices are handled electronically. "Everyone agrees that getting rid of paper and automating processes is beneficial. Yet adopting new technology and redesigning payment processes is easier said than done," observes Julie Snyder, director of product strategy for cash solutions at PeopleSoft Inc., Pleasanton, Calif. Nevertheless, companies are beginning to adopt e-payment strategies. They are installing systems that link to general ledger and ERP programs to handle funds transfers through Automated Clearing House (ACH), a national electronic payment exchange. It allows companies to move funds automatically from a buyer's bank account to a seller's bank account on a designated settlement date. A few are also embracing electronic payments through Web-based trading exchanges. Either way, the benefits can be substantial. Depending on the systems a company uses, as well as its internal processes, it's possible to reduce per-transaction cost from dollars to cents. Of course, there is obvious savings in eliminating the cost of paper, postage, and manual handling of payments. But that's only the beginning. "Electronic payments allow companies to manage cash more effectively and conduct e-business in a more efficient and automated manner," explains Penny Gillespie, senior industry analyst for consulting firm Giga Information Group Inc., Cambridge, Mass. That's certainly the case at LSI Logic Corp., a Milpitas, Calif., firm that designs and manufactures microchips for computers, consumer electronics, and telecommunications. "E-payments are only one part of our overall e-business initiative," says Rick Marz, executive vice president of geographic markets. Still, it's an extremely important part. With nearly 1,000 invoices a month streaming into accounts payable, the workload could be overwhelming. Instead, using SAP as well as electronic data interface (EDI) software from Sterling Commerce, LSI Logic routes EDI invoices into its ERP system. At that point, the accounts-payable module checks them against the company's internal records and, if price and terms match, it generates a payment automatically on the due date. If the data do not match, workflow routes the transaction to a person in accounting who can resolve the discrepancy. At present, LSI Logic processes about 25% of its payments electronically, though Marz says the number is rising rapidly. About 40% of the firm's trading partners are now equipped to handle electronic transfers; overall, about 90% of North American firms are set up for it. The company now is in the process of setting up a Web site where vendors and customers can view invoices, purchase orders, order status, and pending payments. "The system is reducing costs, taking people and paper out of the loop, and putting computerized information at our fingertips," says Marz. Although electronic payments have been around for years, it's only recently that the idea has taken off in any significant way. According to the National Automated Clearing House Assn., Herndon, Va., the total number of ACH transfers swelled from 1.3 billion in 1989 to 6.2 billion in 1999. Financial EDI transactions, used almost exclusively in the B2B marketplace, grew from 64.5 million in 1998 to 79 million in 1999. The rise of electronic banking, combined with the emergence of the Web and industry standards, has played a major role in boosting electronic payments, says Daniel McGurl, president and CEO of Bottomline Technologies Inc., a Portsmouth, N.H., company that helps corporations convert from paper-based billing systems to swapping funds electronically. Its PayBase software allows companies to make, receive, and manage payments over the Web. "The technology now exists to make B2B electronic payments feasible, and the acceptance is finally coming," he says. Still, with upward of 12 billion invoices crisscrossing the globe annually, e-payment has a long way to go, McGurl admits. In many cases, the hindrance is more human than technological. Electronic bill presentment and payment isn't seen as being as crucial-or sexy-as an e-commerce site or enterprise resource management system, and some finance professionals are stuck in an "If-it-ain't-broke-don't-fix-it" mode, says Avivah Litan, research director for payment systems at GartnerGroup. Yet another factor is that ACH transfers require some data entry before trading partners can use them, and many accounts-payable departments don't want to fuss with it for a one-time transaction. Nevertheless, companies are realizing that an island of inefficiency amid a tidal wave of e-business doesn't make sense. At Hamilton Sundstrand, a Windsor Locks, Conn., unit of United Technologies Corp., the paper chase is rapidly disappearing. The supplier of environmental controls and spacesuits for commercial, space, and military aeronautics has moved into electronic bill presentment and payment in a big way. Vendors now post their invoices on a secure Web site using EDI, and workflow routes the transactions directly into a J.D. Edwards & Co. ERP system. When invoices match, the payments are generated with no human interaction. "Now, we're only dealing with exceptions rather than every payment," notes Tom Rogan, Hamilton Sundstrand's CFO. In fact, the Web-based NetTransact software, which was developed by Bottomline, lets customers make changes to invoices and payments already entered into the system-if they believe there is an error. Hamilton Sundstrand receives an e-mail when an adjustment appears, and it's routed back into the financial module of the J.D. Edwards ERP system for verification. He says that the company has already realized nearly a 20% overall cost reduction while reducing disputes by 12%. And on the receivables side, "We can now take corrective action within a few days rather than waiting 60 days and then getting on the phone to address a problem," says Rogan. Giga Information Group's Gillespie notes that electronic payment systems not only free both the payer and payee from labor-intensive manual processing, they also are safer, cheaper, and more predictable than check payments. Although companies have used wire transfers for years, the high price tag for transactions-typically $20 to $25 each-makes them cost prohibitive on a widespread basis. Automated Clearing House, on the other hand, costs only a few cents per transaction, and can carry remittance data that's used to streamline e-business. One major downside to ACH, Gillespie notes, is that it must be set up ahead of time. It's not possible to exchange funds immediately, as is the case with wire transfers. It's also not feasible for many medium and small companies that find ERP suites and EDI software unaffordable. Yet even that's changing. For example, Portland, Maine-based Clareon Corp. now offers an application that uses a browser plug-in to digitally sign and encrypt files from a company's accounts-payable program. Once the firm has sent the data to Clareon, it decrypts the file, inserts a payment authorization, and transmits it to ACH for payment. Clareon's service costs about 50 cents per transaction, compared with about $2 per check. And it's able to handle international payments. With Web-based trading exchanges and e-commerce on the rise, new payment systems are popping up all the time. Start-up PaymentWave, backed by industry heavyweight First Data Corp. and Entrust Technologies Inc., soon will introduce a system that is optimized for instant electronic funds transfers at trading exchanges. The system will process and settle a variety of payment types, including credit, purchase cards, and international electronic funds transfers. It also will support escrow and payment scheduling services. All this will eliminate the need to go offline to settle a transaction. Another firm focused on B2B exchanges is New York-based Crosslinks.com, which handles global bill presentment and payment on a real-time basis. One of the first customers to embrace the concept is the Petroleum Electronic Pricing Exchange (PEPEX), which consists of 95 major companies, including Texaco, Shell, and Chevron. Although commerce between these companies already takes place online, payments until now have been handled manually. "Settlement could take days or weeks," says Boris Marchegiani, PEPEX chairman. The Crosslinks system not only automates and streamlines financial transactions that can run into the tens of millions of dollars, it reduces errors. Still, most companies that turn to electronic payments are simply happy to streamline burdensome accounts-payable and accounts-receivable processes. "Electronic payments are a drastic improvement for everyone. It's a way to better manage cash," says Maureen Dolan, cash manager at Land O'Lakes Inc., a St. Paul, Minn., dairy co-op that deals with more than 1,000 community cooperatives and 300,000 farmers and ranchers in 30 states. On the agronomy side of its business, Land O'Lakes receives about 62% of its accounts-receivable dollars electronically. "There's no mail float or check float. The money is in our account and available immediately. The funds are guaranteed and we don't have to pay the bank to handle lockbox processing," she says. Land O'Lakes now pays out about 50% of checks to farmers electronically. The firm hasn't stopped there. Last year, using 355 corporate purchase cards for procurement, Land O'Lakes folded 26,500 purchases into 12 electronic payments (one for each month's bill). It is able to immediately upload the data into its general ledger for reporting and analysis. "The overall goal is to eliminate a lot of back-room administrative activity," she says. "Whenever you can drive paper out of the system you're going to witness gains." While the conventional check isn't dead, its future is dim. John Duncan, executive vice president at First Data, Atlanta, believes that it's only a matter of a few years before the vast majority of payments occur electronically. "Payments are the forgotten half of commerce," he explains. "There are now too many advantages to electronic bill presentment and payment for companies to ignore."