The Case for Automating Vendor Payments in Your Auto Dealership

Vendor payments in auto dealerships, by and large, have been governed by manual processes involving keying paper invoices into accounting systems, matching paper statements for approval, and issuing paper checks. These work tasks aren't just slow, they're prone to errors and put auto dealerships at risk for security threats and fraud.

Accounts payable automation is designed to eliminate these types of inefficiencies found in manual accounts payable processes. As far as vendor payments, this can mean the elimination of paper check issuance, higher accuracy, and faster payments—plus opportunities to earn valuable cash rebates on spend.

The Current Vendor Payment Process in Accounts Payable

For many auto dealerships, AP processes remain largely manual, from end to end. Dealerships still receive a significant number of paper invoices from their vendors, which are then entered manually into accounting systems by accounts payable (AP) staff. 

After completing data entry, staff must match them with purchase orders and statements to ensure that the dollar amounts are correct and that there are no discrepancies elsewhere on the invoices. This manual reconciliation process typically involves multiple departments and layers of approval, which can be time-consuming and siloed. 

Once AP staff approve invoices, they must issue paper checks to pay vendors, and this requires significant time preparing, signing, and mailing checks. With such slow processes, it's common to experience delays in payment and missed cash rebate opportunities. 

Manual processes also increase the likelihood of payment errors, late fees, and fraud—all of which can impact an auto dealership's bottom line. With these types of challenges at hand, relying on outdated, manual processes no longer makes sense, especially when it comes to efficiency and maintaining strong relationships with vendors.

Approximately 35% of businesses have not automated any of their AP processes.

Types of Vendor Payment Methods in Accounts Payable

As an auto dealership evolves, there's going to be a growing need for more efficient and secure payment methods. To address these issues, it’s time to look at moving toward electronic payment methods, with the most common forms of electronic payments being ACH transfers followed by wire transfers and virtual credit cards.

Here are more details on the types of electronic payments available in AP:

• ACH Transfers: ACH payments are a fast and secure method for transferring funds directly between B2B bank accounts. They offer a low-cost, reliable way to pay vendors without the need for paper checks. Many auto dealerships have already adopted ACH because they're fast and more secure than paper check payments.
  
  
• Wire Transfers: For larger payments, international payments, or more urgent transactions, wire transfers provide a secure, immediate way to move money. They typically come with higher fees than ACH payments.
  
  
• Virtual Credit Cards: These types of card payments offer the flexibility of a personal or corporate credit card without having to use a physical card. Each virtual card is issued for one-time use or recurring payments, and each transaction is secure and traceable. This payment method has grown in popularity for businesses seeking a reliable and fraud-resistant option when making vendor payments.

While these electronic payment methods are more efficient than traditional paper checks, auto dealerships still face challenges with manual accounts payable processing. Switching from paper-based systems to digital solutions, however, can help dealerships mitigate their processing dilemmas—especially when an AP automation solution can integrate with a dealership’s DMS or accounting system.

Because of faster processing times, approximately 79% of vendors prefer digital payments,
such as wire transfers, ACH transactions, and virtual card payments.

Vendor Payment Automation in Accounts Payable

Vendor payment automation is a way to eliminate the inefficiencies of manual accounts payable processes, offering auto dealerships a faster, more secure, and more cost-effective way to handle their vendor payments and avoid late payments. Through automation, dealership finance teams can replace paper-based systems with an end-to-end AP automation solution that integrates seamlessly with accounting systems.

At the core of vendor payment automation is the ability to process invoices, approve payments, and make payments automatically without the need for manual intervention. Automation reduces human error by validating data and ensuring that all required steps are followed before a payment is issued. It also allows for B2B payments to be made through methods like ACH transfers and virtual credit cards instead of paper checks.

In addition to speed and accuracy, automation provides real-time insights into accounts payable, allowing financial leaders to check payment status, track spending, manage cash flow better, and make informed decisions. Overall, by automating routine tasks, an AP team can focus on higher-value activities instead of spending time on repetitive tasks.

Steps to Automating Vendor Payments in Accounts Payable

1. Assess Your Current Process of Paying Vendors. Before implementing automation, it's important to understand how your current AP process works. Identify pain points like long approval times, payment delays, and risk factors. This assessment will help you determine where automation can provide the most value.
   
   
2. Choose the Right AP & Payment Automation Solution. Select an AP automation software that integrates well with your existing accounting and financial systems. Check with each potential automation provider to ask if their solution supports the types of vendor payment methods you plan to use (e.g., ACH, virtual cards) and offers the necessary security features.
   
   
3. Digitize Your Invoices. The first step in automating for more timely payments is digitizing invoices. With AP automation, every vendor invoice is captured digitally (via email, OCR, or other methods) and entered into the system automatically, eliminating the need for manual data entry.
   
   
4. Set Up Approval Workflows. One of the biggest advantages of AP automation is the ability to set up customizable approval workflows. You can configure your automation platform to route invoices through the appropriate departments for approval, in adherence with your dealership’s policies. This not only helps your business eliminate slow processing, but it also ensures delegation of duties stays separated.
   
   
5. Automate Payment Scheduling. At this stage, it's important to work with your vendors to choose a payment method that suits their needs and preferences. While virtual card payments are encouraged for their added security and potential cash rebates, vendors should have the flexibility to opt for other options, such as ACH transfers, EFT (electronic funds transfer), or even traditional paper checks. Offering a variety of payment methods ensures smoother onboarding and strengthens vendor relationships by providing them with convenient, secure ways to receive payments. 
6. Monitor and Optimize. After you have an automated payment system in place, monitor accounts payable to ensure that payments are being processed accurately and on time. AP automation solutions provide real-time insights, which can help you optimize your cash flow and further reduce costs.

Challenges with Manual Invoice and Payment Processing

Despite the growing availability of faster and more secure payment methods, many auto dealerships continue to rely on manual payment processes to handle vendor payments. These manual workflows create a number of challenges for dealerships:

Tasks are Time-Consuming for AP Staff

Manually processing invoices, matching them with purchase orders, and securing approval can take weeks, especially in a high-volume environment like an auto dealership. Overall, the manual tasks required to key invoices into accounting systems leads to inefficiencies, slowing down invoice processing and the entire payment cycle.

Vendor Payments are at Risk for Errors 

Mistakes are common in manual AP processes and human errors can lead to duplicated payments, missed invoices, or incorrect payment amounts. These errors are not only time-consuming to fix but can also make vendor management difficult and damage vendor relationships over time.

There is Limited Visibility of AP Processes and Invoice Payments

With paper-based workflows, financial leaders often struggle to get a clear, real-time view of the dealership's cash flow and outstanding payables. Invoices, approvals, and payment execution can become scattered across different departments, making it difficult to track the status of payments and pay their vendors on time.

Security Risks and Payment Fraud are Real Threats 

Manual processes often rely on paper checks, which can be lost, stolen, or forged. These risks expose dealerships to fraud and unauthorized payments, potentially causing significant financial losses. Paper records are also vulnerable to data breaches and physical damage, adding another layer of security risk.

Missed Cash Rebates and Discounts

Vendors may offer early payment discounts or rebates for fast processing, but manual payment systems often miss these opportunities due to delayed payments. As a result, dealerships may pay more than necessary for products and services, leading to higher costs.

The Association for Financial Professionals stated in a 2024 report that 80% of organizations experienced
attempted or actual payment fraud in the past year.

Ready to Streamline Vendor Payments with AP Automation? 

Vendor payments in auto dealerships don’t have to be slow, error-prone, and fraught with security risks. By implementing accounts payable automation, dealerships can transform the accounts payable process into a faster, more efficient, and secure system that improves cash flow, reduces errors, and strengthens relationships with vendors. Automation offers the added benefit of earning cash rebates, optimizing payment schedules, and freeing up time for your finance team to focus on higher-priority tasks.

Ready to take your vendor payment process to the next level? Schedule a demo with CloudX today and see how our AP automation software can streamline your payments, reduce costs, and improve your dealership's financial operations. Let’s make accounts payable as efficient as your sales floor!