Historically, AP automation initiatives have not given enough consideration to the type of payment method chosen for disbursements. Today, the majority of organizations are continuing to use checks to pay their major business suppliers. There are differences in the costs and risks associated with a given payment method, whether a payment is made by a check or some form of electronic payment.
Despite significant advances in the availability of cost-effective payment automation solutions, most organizations still face issues when making payments. Companies that optimize payment methods choose their payment types based on variables such as cost, customer, location of a customer, and/or the relevant currency.
The cost of payment can vary significantly based on the type of payment method. In deciding on payment type, the initial consideration is often between a check and an electronic payment (ACH, Wire, or Card Payment).
Costs associated with changing payment methods may include creating and re-engineering processes, training costs and technology upgrades. Vendors may insist on receiving payments by checks or place a high value on the payment remittance information provided with checks.
Typically, detailed remittance information is not easily associated with an electronic payment. However, payment automation solutions simplify this process; ensuring vendors receive detailed remittance information for every invoice regardless of payment method.
If a supplier agrees to accept an electronic payment, an ACH is often their ideal method for low dollar payments. Suppliers may require a wire transfer for high dollar payments when payment is unexpected and/or the supplier wants the increased visibility associated with a wire.
There are several benefits on making a payment via a virtual or corporate credit card. Organizations processing vendor payments by card can enhance workflow, automate journal entries, improve controls, and earn early payment discounts.
Often, companies do not have time to explore whether a vendor will accept payment via card, so paper checks remain the payment method. However, payment automation systems offer vendor enrollment and onboarding services that are usually included in the cost of the product.
Selecting the right payment method and supporting multiple payment types may seem complicated. But payment automation solutions make life much easier for businesses that have manual payments processes, and/or share data via different systems that do not communicate well with each other.
Organizations that leverage virtual cards on average earn $500 for every million dollars in accounts payable spend. It means that businesses with very significant AP spend can earn enough so that making payments actually makes them money.
Best-in-class AP management requires a company to optimize how payments are made to suppliers. There are specific costs and risks associated with each payment type and a particular method of payment.
However, those costs and risks can be reduced and effectively managed by an automated AP system. Businesses need to align people, process, and technology on all fronts to optimize the entire accounts payable process.
AP automation software empowers businesses of all sizes to have a best-in-class accounts payable process that impacts the bottom line and improves productivity across the company.