How to Automate Your Payment Processing

Accounts payable departments—especially large ones—find that automating payment processing for vendor invoices makes the process much easier and quicker. While human involvement is always needed, an automated payment system can shoulder the brunt of the work and present invoice data to AP employees in a format that’s easy to read, organised and secure.

How Does Payment Automation Work?

In a nutshell, payment automation refers to software-based systems that receive, process and settle vendor accounts with light human review. While each payment automation system is slightly different, the basic functions of these systems are similar across the board.

Invoice processing. Vendor invoices are fed into the system as they are received. After verifying each invoice, the system uses optical character recognition (OCR) technology to extract the essential details and display these details on digital tables.
Sorting. Once the invoices have been read and the details of these invoices have been added to the digital tables, the entries are filtered to ensure that the right invoices are directed to the right employees or departments for payment. Invoices that exceed a predetermined value may be submitted to management for review.
Bank verification. The system verifies that the banking details for each vendor are correct and that the company has sufficient funds to pay each invoice.
Payment. After automated or human approval, the system initiates an electronic bank transfer, direct debit, wire transfer or virtual card transfer through a secure global payment gateway to settle each invoice. ACH payments, sent via the Automated Clearing House, are often used for B2B payments in the United States.
Taxes. If required, the system collects and submits the relevant tax amounts for payment.
Reconciliation. The system updates the company’s financial data to reflect the completed payments.

From beginning to end, this automated accounts payable process can be completed in minutes rather than hours. As long as the vendors entered the right details on their invoices, all of the figures should be correct.

Benefits of Automated Payments for Companies and Vendors

We’ve covered the steps involved in an automated payment system, but why is payment automation beneficial?

Benefits for Companies

Complete visibility. The business owner and head of the accounts payable department can see the payment status of each invoice in real time, along with the invoice amounts. This makes it easier for management to pick up on any issues or inconsistencies and helps to prevent problems like embezzlement.

Accurate data entry. Automatic data transfer ensures that all of the amounts are listed accurately. You can think of it as the equivalent of copying and pasting rather than looking at numbers and typing them in (the latter of which is common in manual payment processing).

Recognises duplicate invoices and prevents duplicate payments. Payment automation software recognises duplicate invoices and automatically ticks off each payment as it’s completed, eliminating any risk that a vendor invoice will be paid twice. 25% of AP professionals surveyed by PYMNTS said that duplicate payments and invoices are pain points of AP operations and according to 2015-2016 data from SAP Concur, the average small-to-medium-size business pays around six duplicate invoices (or 1.29% of an average of 450 invoices) each month.

Reduces payment fraud risk. AP departments can be susceptible to internal data leakage, theft from company accounts and overestimating invoices to skim some money off the top. With payment automation solutions, all of the numbers are visible to management and access to sensitive information (such as bank account details) is restricted, helping to prevent theft.

Provides cost savings on invoices. Issuing electronic payments is less costly than sending cheques. In Europe, electronic bank transfers are often free whereas cheques can cost up to a few Euros to send. Additionally, by paying invoices on time (or paying the cost of recurring subscriptions early), companies can often enjoy early payment discounts and avoid late fees.

Provides cost savings on labour. Automated payment systems do come at a cost. However, that cost is much lower than paying salaries to the equivalent number of employees. Before investing in a payment automation package, ask about all of the regular and incidental fees and perform a cost-benefit analysis to see if the system would make financial sense for your company (both now and as the business grows).

A dependable workflow. Many vendors won’t release shipments until the payment for each shipment has been received in full. When invoices are processed on time, shipments will arrive on schedule, ensuring a consistent workflow and preventing bottlenecks in the supply chain.

Allows the company to scale. Small companies may be fine with a manual spreadsheet system for accounts payable. However, spreadsheets can become unwieldy as the list of vendors grows from 10 to 100. By using an automated AP process, you can increase the number of vendors indefinitely without making things too complicated or needing to hire more staff.

Benefits for Vendors

Faster payments. A faster payment process on the company’s end means that vendors receive payments sooner.

More consistent payments. An automated process means that no invoices are missed, improving the company-vendor relationship and ensuring consistent cash flow for vendors.

Easier invoicing. In some payment automation systems, vendors create a user profile that contains their payment information and invoicing data. When these kinds of systems are used, vendors can create invoices with only a few clicks.

Are There Any Drawbacks to Automated Payments?

As with any automated system, automated payment systems aren’t foolproof. Problems can still occur if the data on a vendor invoice was entered incorrectly, if a subscription was discontinued and no one cancelled the recurring payment in the system or if someone hacked into a vendor or company’s account.

Because of these risks—however minimal—it’s essential to review transaction data regularly and communicate any changes to the relevant team members. It’s also important to look for a payment automation solution that still allows you to make certain changes manually, update rules, permissions and so on. These kinds of features ensure that the business owner remains in control.

Things to Look for in a Payment Processor for Your Automated AP Transactions

Whichever payment automation system you choose for analysing and paying invoices, you’ll need a payment processor to complete the electronic payments—whether they be card payments, electronic bank transfers or e-wallet payments.

When looking for a payment processor for your automated B2B payments, look for one that:

Is reputable and has several years of experience serving businesses of every size
Is transparent about pricing
Is PCI-compliant and uses the highest standard of end-to-end encryption
Offers adjustable fraud prevention tools
Offers several types of payment methods
Offers 24/7 live customer service to help you resolve any payment issues quickly
Offers a wide range of merchant services to help your business grow

Once you’ve found the right payment processing partner, you can automate your vendor payments with confidence—knowing that your payments system is backed by people who want to help you succeed.

Optimise Your AP Process Today

Wherever your business is at now, payment automation software tools can help you improve the accuracy, timeliness and speed of your payments and keep sensitive data safe. And with the right payment processing partner, you can be assured that your electronic payments will be delivered quickly, securely and successfully.

If you’re interested in adopting an automated payment system, research the systems and payment processors that offer this tool, consider the features that would best fit your values and business model and consult with your team. Then, trial your chosen system with a small number of vendors to perfect the process so that you can confidently scale.