There are many payment methods available to a company for accounts payable. Each of them has its advantages and disadvantages. When it comes to choosing one of the methods, it can be overwhelming. Researching each method and trying to apply every one of them according to your need is a very tall task and is not viable for many reasons. Deciding on a payment method is essential to businesses as vague processes could cause a lot of trouble in the future when the demand is at its peak.
Many of our problems are solved by adopting AP automation, which cuts our choices by half. Digital payments are viable with a quality AP automation system. Seeing how everything is getting digitized, this is the route your company should also go for. If you are researching the best AP payment option that you should apply for, then you’ve come to the right place. We’ll be going through the most viable digital payment options and why each is as good as the other. Before doing that, let’s first understand what part AP automation plays in all of this.
AP automation
As the name suggests, accounts payable automation is the automation of all the included processes. Accounts payable is the portion of a finance department that handles paying vendors and sellers for the received goods and services. In layman’s terms, they are the invoices from suppliers your organization hasn’t settled yet. Handling invoices, keeping track of payments, and other essential tasks are the jobs of the AP department.
Almost every industry is adopting automation of some sort. Jobs that don’t require much human inspection are already being automated to improve efficiency. AP automation is doing the same in a B2B environment. The eCommerce industry is increasing. It has become essential for companies to adopt payment methods. Why? First of all, you need a well-thought-out plan to ensure that you’re meeting the increased demand. Secondly, most companies are adopting AP automation, which is complemented by a laid-out digital payment method. If you are ahead of the competition, chances are you will grow much faster
Digital AP payment methods
In this section, we’ll go over various digital payment methods that different companies are using:
● ACH
ACH or Automated Clearing House is a method that most companies use nowadays. There are two types of ACH: Regular ACH and same-day ACH. Regular ACH is a direct payment to the vendor. However, you must remember that the price isn’t immediate; it takes three to five days to process. It is like a check but in digital form. Same-day ACH, as you might’ve guessed, allows payment on the same business day. It has a constraint, though. The price must be issued before 2:45 p.m., or it will only go out the next day.
● Wire transfers
Wire transfers come in second place as the most used payment method. Although the method is faster and easier to adopt, it is not very secure. It comes in second for incidence of fraud, and that says something. Wire transfers are adopted as it provides mobility to the users. You can issue payments sitting at your home. However, banks charge more for wire transfers than other methods like ACH. Many large firms that receive and give international transactions are the ones that use this method the most.
● Purchase cards
Purchase cards, also known as company cards, allow goods and services to be obtained without using conventional methods. Purchase cards have put old-fashioned procedures like paper checks out of use. This card is provided chiefly to trusted employees under specific guidelines to be followed. What makes this card viable is the controls that can be put on the card:
● Single-purchase dollar limits
● Monthly review and approvals of purchases by an authority greater or equal to the cardholder
● Specific merchant category modes can also be restricted
● Real-time payments
Real-time payments are the next trend and for a good reason. Studies suggest that almost one-third of the companies will roll out real-time payments in the next few years. They provide a lot of advantages like immediate fund availability and settlement finality. Apart from these, instant confirmation and integrated information flows are also reasons why companies are attracted to adopting the method. Moreover, real-time payments cost the same as other non-instant payment methods and are much lower than conventional methods.
Conclusion
AP automation has increased in the last few years. Many experts suggest the market for it may grow to over $3 billion in the next three years. Experts also suggest that digital payment methods will give companies an edge. They can quickly expect processing costs 81% lower than their counterparts and almost 70% faster-processing cycle times.
Accounts payable or AP department is the one that handles all the transactions to vendors and other businesses. To be more specific, accounts payable is the portion of the finance department responsible for transactions of received goods and services. Therefore, all the due payments can be seen on the incoming side of your balance sheet. The AP department mainly works on handling payments, and hence, a reliable payment method is necessary.
Companies that are still stuck using conventional methods are losing a lot of money. They are so bad in terms of cost-effectiveness and efficiency that we’ll not even mention them. Digital payment methods are the ones carrying the industry right now. Many companies are moving towards automation, i.e., digital means, which means payment methods need to catch up to them. Before moving to the best digital paying method, virtual cards, let us first understand different methods in the industry.
Digital payment methods
Many payment options are out there, so much so that choosing one might feel overwhelming. If you haven’t done much research on the topic, you’ll be confused. Don’t worry; we’ll be covering the most used payment methods in brief:
ACH
ACH stands for Automated Clearing House and is one of the most common B2B payment methods. Most companies choose payment methods based on their ease of use and cost-effectiveness. This method ticks out both of these features. However, it does have some disadvantages. For example, ACH payment goes through between 3 to 5 days after issuing the payment. So, if you want your payment method to issue payments instantly or at least on the same day, you might refrain from using this option.
Wire transfers
Wire transfers come in second place when it comes to popularity. The central selling point of this method is that it promotes the recent trend in the work environment, i.e., remote working. As many companies have adopted remote working, switching or adopting wire transfers was a no-brainer. However, this method does come with a lot of sensitiveness to fraud. If your network is not very secure, which is generally the case when you access payment portals from home, you are more vulnerable to hackers.
Purchase cards
Purchasing cards, also known as company cards, allow trusted authorities to pay for goods and services without using conventional methods digitally. Generally, this card is issued to authorized employees who are given specific guidelines on using them. In addition, companies can put certain limitations on the card to further ensure security. This seems reasonable, but this method is the least secure of all the other options. In addition, it is susceptible to crimes like credit card fraud and identity theft.
Apart from these options, another option is taking the industry by storm. This method has overcome most of the disadvantages that other processes had and is quickly becoming the industry standard. The way we are talking about it is, of course, Virtual cards.
What are virtual cards, and why are they so good?
A virtual card is a credit card that is only present virtually. The card is essentially a 16-digit card number that can only be used once. They work exactly like how credit cards work and can be used to pay your vendors. There are many advantages that virtual cards provide, and reading about these will be enough to switch to virtual cards as your main payment method:
Rebates
You can earn monthly rebates if you use virtual cards. The ability to create new revenue streams is why most companies are switching to virtual cards. If you are a company and you had to choose between a department that consistently operates at a loss and a department earning money for your company, the choice is obvious. Many virtual cards can generate up to 1% cashback on AP spend. On top of that, it is an immediate return on investment on all the transactions done via v-card.
Streamlines AP processes
Streamlining your accounts payable processes is a big part of AP automation. AP automation is the removal of manual processes, which causes less human error and makes everything more efficient. For example, suppose you are using something like paper checks. In that case, intermediate methods like writing checks, stuffing bills in envelopes, and then metering those envelopes are negated, saving a lot of time and effort.
Increased security
As everything is getting digitized, more and more threats regarding fraud are being made to companies. Virtual cards are much more secure against these kinds of attacks. First of all, the ID of a virtual card can only be used once, i.e., a 16-digit number is tough to pinpoint as it can have more than 2 trillion combinations. On top of that, they are made with heightened security standards so that your payment goes through without any disturbances.
Conclusion
All the advantages mentioned above have attracted organizations to use virtual cards. Studies suggest that more than half of the vendors are happy to receive a secure and fast payment. Moreover, 30% of the companies have already switched to virtual cards, and more are adapting.
There are many payment methods available to a company for accounts payable. Each of them has its advantages and disadvantages. When it comes to choosing one of the methods, it can be overwhelming. Researching each method and trying to apply every one of them according to your need is a very tall task and is not viable for many reasons. Deciding on a payment method is essential to businesses as vague processes could cause a lot of trouble in the future when the demand is at its peak.
Many of our problems are solved by adopting AP automation as it cuts our choices by half. Digital payments are viable with a quality AP automation system. Seeing how everything is getting digitized, this is the route your company should go for as well. If you are researching the best AP payment option you should apply for, you’ve come to the right place. We’ll be going through the most viable digital payment options and why they are as good as the others. Before doing that, let’s first understand what part AP automation plays in all of this.
AP automation
As the name might suggest, accounts payable automation is the automation of all the included processes. Accounts payable is the portion of a finance department that handles paying vendors and sellers for the received goods and services. In layman’s terms, they are the invoices from suppliers your organization hasn’t settled yet. Handling invoices, keeping track of payments, and other essential tasks are the jobs of the AP department.
Almost every industry is adopting automation of some sort. Jobs that don’t require much human inspection are already being automated to improve efficiency. AP automation is doing the same in a B2B environment. The eCommerce industry is increasing. It has become essential for companies to adopt payment methods. Why? First of all, you need a well-thought-out plan to make sure that you’re meeting the increased demand. Secondly, most companies adopt AP automation, complemented by a laid-out digital payment method. If you are ahead of the competition, chances are you will grow much faster.
Digital AP payment methods
In this section, we’ll go over various digital payment methods that different companies are using:
ACH
ACH or Automated Clearing House is a method that most companies use nowadays. There are two types of ACH: Regular ACH and same-day ACH. Regular ACH is a direct payment to the vendor. However, you have to keep in mind that the payment isn’t immediate; it takes three to five days to process. It is like a check but in digital form. As you might’ve guessed, Same-day ACH allows payment on the same business day. It has a constraint, though. The payment must be issued before 2:45 p.m., or it will go out the next day only.
Wire transfers
Wire transfers come in second place as the most used payment method. Although the method is faster and easier to adopt, it is not very secure. It comes in second for incidence of fraud, and that says something. Wire transfers are adopted as it provides mobility to the users. You can issue payments sitting at your home. However, banks charge more for wire transfers than other methods like ACH. Many large firms that receive and issue international transactions are the ones that use this method the most.
Purchase cards
Purchase cards, also known as company cards, allow goods and services to be obtained without using conventional methods. Purchase cards have put old-fashioned procedures like paper checks out of use. Mostly, this card is provided to trusted employees under specific guidelines that are to be followed. What makes this card viable is the controls that can be put on the card:
Single-purchase dollar limits
Monthly review and approvals of purchases by an authority greater or equal to the cardholder
Specific merchant category modes can also be restricted
Real-time payments
Real-time payments are the next trend and for a good reason. Studies suggest that almost one-third of the companies will roll out real-time payments in the next few years. They provide a lot of advantages like immediate fund availability and settlement finality. Apart from these, instant confirmation and integrated information flows are also why companies are attracted to adopting the method. Moreover, real-time payments cost the same as other non-instant payment methods and are lower than conventional methods.
Conclusion
AP automation has been overgrown in the last few years. Many experts suggest the market for it may grow to over $3 billion in the next three years or so. Experts also suggest that digital payment methods will give companies an edge. They can quickly expect processing costs 81% lower than their counterparts and almost 70% faster-processing cycle times.
