Feb 8, 2018 Ralph Perdomo
Well, it’s more like six weeks into 2018—which also happens to be around the time most New Year's resolutions fall by the wayside (80 percent in fact). So now with those pesky personal resolutions out of mind, can you begin to focus on more pressing, work-related matters.
For example: Modernizing accounts payable with electronic payments.
Converting payables for electronic payments (ePayments) is actually much simpler than you expect. You may even be surprised to learn just how far along AP is on its journey to sending ePayments. All that’s remaining is finding the right payments solution provider.
Created by Ryan Mason
This article will help you identify the benefits an ePayments provider can offer to an accounts payable department.
Where to begin
A key component to modernizing AP is to send payments electronically. That involves shutting AP’s 3-ring binder of checks and relinquishing the task to another.
But you’ve already done that. You’ve already abstracted the payments processes by instructing your team through policy and procedure. Working with an electronic payments partner, then, should be viewed through this same lens.
For example, the task of printing checks is handled by someone else—it’s no longer the AP manager’s responsibility to do so. What’s more, the check-printing task is created so the person printing the actual check (but not signing) isn’t the same as the person entering the invoice or PO.
Those procedures, although created for the sake of preventing fraud, is the first step to working with an ePayments solution. Similar to how you implemented procedures for AP to follow, so too do you implement procedures for the ePayments provider to follow. This is done through the payment file.
The payment file
The payment file traditionally contains a list of suppliers to pay, the amount to pay, the invoice it corresponds to, the payment type, and where the payment should be sent (address, banking information, or email address).
The easiest—and quickest—way of converting payables to electronic payments is to send this payment file to a third-party check printer, assuming all the payment types are “check” and the payment file contains vendor addresses. In essence, the check printer would accept the payment file, print the check for the intended suppliers, and send the check out on your behalf.
But the whole point of an electronic payments solution is to send payments, well—electronically. Creating a payment file to then pay by paper check is rather silly. It would be the same as printing an email to then respond by first class mail.
Why limit your payment options to snail mail when other electronic payment types—ACH and card—exist?
Alternative payment types: ACH and Card
51 percent of businesses were still writing checks in 2016. Any electronic payments provider that pushes organizations past this status quo is a step in the right direction.
Considering the cost of writing and sending checks—from the fixed costs of postage fees and envelopes, all the way to the more fluctuating costs, such as labor— it quickly becomes imperative to ditch the check. By AFP’s account, the average per check cost is $5.91.
Just reducing the number of checks written—even if it’s outsourced to a check printer—is not only a step in the right direction, but also positively affects an organization’s bottom line. Paying more suppliers through ACH and card can stem the tide of rising costs—and even begin to offset expenses with rebates.
By optimizing the payment mix (the ratio of invoices paid by ACH, card, and print check), the right ePayments solution provider not only pays for itself, but it may even move the needle from red to black through card-based rebates earned.
Before an optimized payment mix is achieved, the ideal electronic payments solution needs to do more than just receive the standard payment file. That ideal ePayments solution provider would reach out to all the suppliers to understand their payment acceptance and collect payment data around that (collecting banking details for ACH, address to mail printed checks, remittance contact, etc.).
This vendor enrollment process has two benefits—
- Maximized rebates. “It never hurts to ask.” Yes—simply asking suppliers to accept card is usually enough. These are typically larger, national suppliers, which are more willing to accept card payment for the sake of quicker funds along with reduced receivables’ cost to accept payment.
But not every supplier accepts card. For example, government agencies typically don’t accept card payments at invoice level. Electronic payment solution providers need to ensure payment is sent successfully every time, either through ACH or printed check.
- Indemnified payments. Continuously verifying supplier information isn’t only necessary to achieve maximum rebates, it’s also how an ePayments provider guarantees the right supplier is paid—regardless of any changes in banking information.
Once the payment file is sent, the best practice is for the ePayments provider to be responsible for paying the supplier. This means the payments are 100% indemnified. Organizations are no longer on the hook for incorrect payments.
Choosing the right ePayments solution is no longer such a daunting task. By delegating different parts of AP’s workflow to separate team members, you’ve already created the framework necessary to work with an ePayments partner. Now, all that’s left is finding the resolve to partner with the right electronic payments solution for your organization.