How to improve your vendor payment process

How to improve your vendor payment process

illustrated hand tapping a credit card on a card readerHeader imageHeader imageHeader imageHeader image

When businesses talk about building relationships, the main focus tends to be on customer interactions. But your relationships with vendors are just as meaningful. Strong vendor relationships can lead to new opportunities, help you gain personalized support, and prevent common payment issues. They also help create a positive business reputation throughout your industry, positioning your business as trustworthy and efficient.

By far, the most significant factor determining the quality of any vendor relationship is your vendor payment process. Timely payments and excellent communication are central to building trust with external stakeholders, so we'll explore the best practices of your vendor payments process in-depth! 

What is a vendor payment process?

A vendor payment process is defined as the policies that you have to pay suppliers, distributors, or contractors for the goods or services they have delivered to your business.

A vendor payment process is an essential part of your business relationship. After all, you and your vendor have entered into an agreement to make money and grow your businesses. 

In previous decades, the vendor payment process was much more complex. You'd receive a mailed contract (or meet together to fill one out), sign and send it back, and then wait for your first invoice to arrive. Then, you'd verify if it's correct, sign it, and mail a check. The downfall with these manual processes is that neither party has complete visibility into what is happening. Documents can get lost in the mail, accidentally thrown out, or ignored in a pile of papers on a manager's desk. 

In contrast, the modern iteration of vendor payment management is much more digital. You can sign agreements online, store them online, and even send payments online. This provides both parties with much more visibility into the process. Vendors can log in to their AP automation account through a provider like BILL and see the exact status of their check so they know if it's pending approval, in process, or on the way. 

9 tips for a seamless vendor payment process

Since vendor relationships are integral to your business, here are 7 strategies to help you build a seamless vendor payment process. Communication and visibility will be vital to a concrete partnership from onboarding to invoice to payment. 

1. Evaluate your vendor relationships

A few key factors can help you choose the right vendor to partner with. When you're having initial conversations with a new vendor, ask some basic questions to determine the scope and breadth of their work. 

  • How long have they been in business?
  • How many employees do they have?
  • What does their supply chain look like?
  • Most importantly, do they have any referrals from long-standing clients?

All of these factors can help you find an established, experienced vendor who can deliver for your business. 

Once you've onboarded a vendor, check in quarterly to see how things are going. 

  • Did any complications arise in the previous months?
  • Are there any adjustments that could make the partnership smoother?
  • Any technologies you could implement to improve communication and speed?

Having these conversations regularly shows that you are dedicated to building the best possible relationships with your vendors. 

2. Streamline vendor onboarding

Your vendor onboarding process acts as the cornerstone of your entire relationship. By delivering a streamlined onboarding experience, your company conveys your efficiency and professionalism. It's a bit like a first date … if you show up disheveled and distracted, it doesn't instill confidence in your long-term partnership. 

Here are a few essential steps to perfect your vendor onboarding process: 

  1. Develop clear terms and conditions: Talk with your vendors about their payment preferences. What payment terms and payment methods work best for their business? 
  2. Create a detailed contract: A contract is essential to protecting both businesses. Both parties should review and agree on deliverables, timing, and payments. 
  3. Set up a welcome call or meeting: Business partnerships are always more successful when you can make a personal connection. In the initial stages of your onboarding process, set up a conference call for both teams to review business goals and expectations. 

3. Protect your business and vendors from AP fraud

Payments are one of the biggest challenges in any business relationship, especially when a payment gets stolen due to fraud. Work with your vendors to establish security protocols that help to prevent accounts payable fraud across the board and utilize technology that provides extra layers of protection. 

One of the most critical security measures you can take is to move all of your vendor communications away from email. Email is one of the easiest ways for scammers to take advantage of small businesses. A common form of Business Email Compromise (BEC) is to create a new email address that is one or two letters away from your vendor's. Once this is done, the scammer will email your employees asking to send payment to a new bank account, hoping they won't notice the difference. 

Moving your vendor communications online is the easiest way to avoid AP fraud. Since the vendor will have to log in to this second account, there is another layer of security within your AP process. And when you use a BILL account, key security protections like two-factor authentication also help keep your communications secure. Finally, vendors manage their own banking information within BILL, meaning that your employees can never mistype or change account information. These tools cut down on the risk of BEC scams and other forms of AP fraud.  

While fraud from your existing vendors is much rarer, it's still worth setting up protections. A common type of vendor fraud is altering invoices to inflate the price of goods and services. Having a complete record of previous payments can help your team spot any anomalies, and you should also include approvers who are familiar with each vendor's work to add another layer of oversight. 

4. Automate your accounts payable process

Automating your accounts payable process is another essential improvement to your vendor payment process. This ensures that bills are paid on time, with time-stamped comments, approvals, and tracking for each payment. This enables your team to move quickly and avoid late payment penalties, or, even worse, lost invoices. 

One of the key steps for a streamlined process is automating your approval workflow, which eliminates one of the largest delays in your payment process. If one of your employees goes on vacation–or an even longer leave–it can halt your entire process. And even when employees work diligently, invoices can be forgotten, misplaced, or flat out ignored in favor of other priorities. 

As a bonus, BILL offers a feature called "Replace approvers," where you can easily swap in a new manager when needed. This is an excellent feature for vacations, maternity leaves, or new hires, as it allows you to keep your vendor payments moving even when there are changes within your personnel.

Having an automated AP process also improves your vendor relationships by making it easy for vendors to see the status of their payments. It's always frustrating when you have to call or email to get the information you need, so storing everything online where all parties gain visibility is essential. When vendors log in to their BILL account, they can see information for every step of the invoice processing cycle, giving them an estimate of when their payment will arrive. 

5. Negotiate payment terms

When onboarding a new vendor, you need to outline terms that will work well for both parties. You should clearly outline how and when you'll pay your vendor. This agreement helps solidify your partnership's financial component, so discuss payment preferences. 

Some popular examples are to pay per item or per hour, or a base monthly fee. You should also confirm the timing of your payments (like paying on a net 30 basis) and whether you can apply any bulk or early payment discounts to your future invoices. 

The last step is to work with your vendor to agree on how they accept payments. Whether you pay by paper check, ACH, credit card, virtual card, or another type of digital payment, create expectations that work for both parties.

6. Centralize payment management

Without a doubt, the post-pandemic world has gotten more complicated, and it's more important than ever to be able to work from anywhere. Even if you don't have a remote or hybrid workplace, employees could travel to conventions, meet clients, or attend social events with the rest of their teams. Being able to pay invoices from anywhere—and using your phone—is an invaluable tool. 

Centralizing your payment management with digital tools allows your team to work from anywhere without sacrificing visibility into your process. It also creates a digital repository of all your files, invoices, comments, approvals, and receipts, so you no longer have to dig through your emails to find the necessary information. These features tie together to create a central, efficient process that will delight your employees and vendors. 

7. Make electronic payments to vendors with ACH

Easy and trackable payments are a massive asset to your vendor payment process, and ACH is the king! Compared to the manual mailing check process, ACH payments provide more control and visibility for both your vendors and your accounts payable team. 

An ACH payment typically takes 3-5 business days to process and deliver, in contrast to the traditional process of mailing checks, which can take upwards of a week. ACH payments are also highly affordable, costing less than $1 with most banks. Through BILL, it's even more affordable, coming out to 0.49 cents to send and receive each ACH payment. Best of all, there's no manual work of writing out the check, addressing the envelope, and taking it to the mailbox, saving your accounts payable team time with every payment. 

8. Automate payments

To further save time for your team, automate vendor payment needs. Payment automation is a technology that businesses can utilize to streamline their vendor payment process. This technology can cover all payments, including ACH transfers, checks, wire, and virtual card payments. 

The recurring bills feature within BILL makes it easy to schedule payments on any timeline your team requires. You can schedule bills using set due dates or default settings like "monthly" or "every two weeks." Then, you can decide whether these bills still require manual approval or select "automatic payments" for a completely hands-off process. This saves your team time on recurring invoices so they can focus on more time-consuming tasks. 

Why it's essential to improve the vendor payment process

Timely, accurate payments are essential to your business relationships … and might be the most crucial aspect of your vendor relationships. When your vendors have confidence in your business' organization and efficiency, they are more likely to expand their offerings, enter into new partnerships, and provide new opportunities for your business. 

When it comes to your vendor payment process, the three most essential functions are speed, organization, and options. The first two are fairly straightforward: Your vendors want to know when they are getting paid and have confidence that it's the right amount. Timely payments help build trust and build goodwill that helps smooth over future issues. 

The third pillar requires more research on your end. Take the time to speak with your vendors and understand their payment preferences. An accounts payable (AP) system like BILL helps you find the perfect blend of speed, cost, and convenience. 

You and your vendors can pick from payments like ACH, paper checks, credit cards, and international wires. These convenient options allow you and your vendors to have better control and confidence in your business relationship, freeing you up to focus on more pressing business matters.

For a full breakdown of how to streamline your vendor relationships, check out our vendor relationships guide! This insightful eBook covers your vendor relationships from start to finish, including tips for onboarding and negotiating terms. 

Ready to optimize your vendor payment process?

Want to see how automation can revolutionize your vendor payments process? Take a demo with BILL to see how you can easily automate vendor invoice management for more control and visibility for your business and vendors.

And to learn more about how to optimize your vendor relationships from onboarding to invoice, check out our Vendor Relationships guide. 

Vendor payment FAQs

How does a vendor get paid?

A vendor invoice should get paid based on the payment terms outlined in their onboarding contract. This contract should outline the timing and payment method between your business and the vendor. Typically, most vendors use ACH payments for their speed, affordability, and visibility. 

What are common vendor payment methods?

ACH is the most commonly used payment method for vendors, but paper checks also remain popular. If sending paper checks through BILL, your account and routing numbers are anonymized for an extra layer of security. Virtual cards are also gaining popularity, and international wires are the most common method to pay vendors overseas. Collaborate with your vendors to see the best options for their business needs!

How long do vendor payments take?

The entire payment process depends upon your approval and payment times. Typically, vendor payments take 3-5 days to arrive after all approvals and reviews have been completed. ACH payments take 3-5 business days, paper checks can take up to 10 days, depending on the post office, and virtual cards are delivered within 1-2 business days. Having all of these options in your arsenal helps you balance each option's speed, convenience, and affordability so you can avoid late payment penalties and keep your vendors happy. 

Can you view a vendor payment history report in BILL?

It's easy to see a vendor payment history within BILL. Select Vendors in the navigation menu, click the vendor's name, then select the "Payments" tab. To find the necessary information, you can sort payments by process date, payment method, status, and amount.

The information provided on this page does not, and is not intended to constitute legal or financial advice and is for general informational purposes only. The content is provided "as-is"; no representations are made that the content is error free.