Payment automation is any tool a business uses in order to automate their process of paying vendors. This generally includes payments made via ACH transfer, check, wire, virtual card payment. Payment automation doesn’t just manage the process of approving payments for manual sending, but will actually complete payment once the automated process of approval has been completed. Generally, payment automation is used as a tools to make the payment processing for any business faster, more streamlined, and less susceptible to human error and wasted work hours that could be better served on other tasks.
Payment automation is generally geared towards improving, optimizing and streamlining the procedures that were once performed manually by employees relating to the payment process— including basic communications, processing and matching of invoices, verification of ACH transfers, and automatically approving and sending payments.
Payment automation ensures fast and accurate payment to vendors as well, improving vendor relationships.
Payment automation generally works by implementing automated methods for processing a wide range of payment-related data and completing actions relating to this data without significant human involvement.
A significant aspect of payment automation is invoice processing— taking in invoices from various sources and in various formats, interpreting the information they contain, storing it, and then completing a review process that results in invoices either being approved and sent or held for manual review if there appear to be inconsistencies.
Another key element of payment automation is ACH verification. ACH, or automated clearing house, is a type of payment conducted virtually by transferring funds directly from one account into another. But this requires the recipient’s bank account data to be verified and securely stored, something that the best payment automation software platforms do seamlessly.
The benefits of payment automation are numerous, ranging from logistical benefits to enhanced security of payments and improved vendor relationships. Here are some of the most common and significant benefits of payment automation. (Note: This is not an exhaustive list of all benefits of payment automation, and the potential benefits to your business may vary depending on the specific business and the specific payment automation platform or system used.)
The accounts payable department of a business isn’t just concerned with making payments— they’re concerned with doing it as efficiently as possible to reduce waste and excess costs. The faster vendors are paid, the less time waste occurs. Plus, fast payment can often result in early payment discounts from vendors.
The use of an automated payment system that uses digital payments rather than paper checks or cash can dramatically reduce costs. The average check-based transaction costs approximately $3.00, while an ACH transfer will almost always cost less than $0.50 to complete. While the savings may not be significant for a single transaction, over hundreds or thousands of transactions conducted by a business, the savings can become significant.
Payment fraud is on the rise, and businesses everywhere are in search of solutions that reduce the likelihood of fraud without slowing down or ruining the efficiency of their payment process.
Payment automation can help reduce fraud in multiple ways. One of the most basic is the reduction of paper checks— the likelihood of check fraud is nearly three times higher than fraud conducted via ACH transfer.
Meanwhile, payment automation can also help reduce fraudulent invoice payments but using invoice matching methods to ensure that only invoices that align with corresponding purchase orders are approved and paid.
The less human involvement in a process, the less opportunity for human error. Payment automation reduces or eliminates the chance of duplicate payments, input errors, or missed payments due to oversight. All of these can result in waste, incorrect bookkeeping, and potentially fractured vendor relationships.
Payment automation and electronic payments allow businesses to capture far more financial data, an essential benefit for companies looking to conduct analytics and improve their efficiency, processes, and payment strategy. Forecasting cash flow is one of the most essential tasks associated with successful management, and increased visibility provided by payment automation can be vital in service of better cash flow analysis.
One of the most time-consuming tasks of accounts payable involves responding to and communicating with vendors relating to their invoices, payment status, etc. By automating the payment process— and key communications relating to it— accounts payable can free up significant time that would otherwise be spent fielding inquiries from suppliers. Meanwhile, vendors benefit from the immediate automated responses they receive in response to actions— improving vendor relationships along the way.
Payment automation is rapidly transforming the way that accounts payable departments function. AP departments are transforming to act as central hubs for all management of financial information and cash flow for companies, powered largely by the capabilities of payment automation that continue to grow with new technology.
Selecting the right payment automation software for accounts payable should always involve a healthy amount of research. After all, each business is unique— as is each payment automation platform currently available on the market.
Overall, the most important criteria to consider during the selection process is the ability to handle every invoice processing scenario that may arise in your business. A payment automation system that fails to effectively automate all invoice processing tasks will result in significantly less time and hard cost savings.
It’s also important to determine whether a specific payment automation solution will properly integrate with your company’s existing enterprise resource planning (ERP) solution. Synchronizing data and creating a streamlined process with little manual involvement is critical in creating a successfully automated accounts payable process.
While some devotees of manual payment processing may believe that there are security risks associated with payment automation, the fact is that payment automation actually dramatically reduces risk while improving visibility, oversight, and efficiency of accounts payable processes.
One potential downside is the cost of implementing a payment automation solution, but nearly all companies that implement payment automation find that its overall savings and measurable benefits far outpace its associated costs.
The content found here is for informational purposes only, and not for the purpose of providing advice, including but not limited to, financial, legal, or tax advice. Any opinion found here does not necessarily represent those of Bill.com.