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6 min read

Which B2B Payment is Best? Checks vs ACH vs Virtual Cards

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If your organization is considering adopting an end-to-end accounts payable (AP) automation solution, you’re probably thinking about your current payment processes and which payment method can benefit you and your vendors the most. Paper checks have been the industry standard since the dawn of accounts payable, but today, ACH is being used more widely as is payment by virtual credit card. With AP automation growing exponentially, wider adoption of virtual credit card payments is anticipated in the coming decade.

This blog will explore the various aspects of all three payment methods: their features, benefits, and how they’re being integrated into AP automation solutions. But before we explore them, it’s important to understand what AP automation is and how it’s being used to automate the invoicing process.

What is AP Automation in Accounts Payable?

Accounts Payable (AP) automation refers to the technology and processes used to streamline and automate the accounts payable processes within an organization. This involves the use of software solutions to handle tasks such as invoice processing, approval workflows, payment execution, and reconciliation.

Designed to enhance the efficiency, accuracy, and speed of accounts payable operations, AP automation minimizes the reliance on paper-based processes and manual data entry, replacing them with digital workflows and automated data capture. The core components of AP automation typically include:

  1. Invoice Capture. Scanning and digitizing invoices using Optical Character Recognition (OCR) or importing electronic invoices.
  2. Data Extraction. Extracting pertinent information such as vendor name, invoice number, and payment amount from invoices.
  3. Approval Workflows: Automating the routing of invoices through the appropriate approval channels based on predefined business rules.
  4. Payment Processing: Facilitating electronic payments to vendors via various methods (e.g. ACH, wire transfer, virtual cards).
  5. Reconciliation: Matching payments with corresponding invoices to ensure accuracy and completeness.
  6. Reporting and Analytics: Providing insights into spend, payment cycles, and process efficiency.

How Does Accounts Payable Automation Work?

AP automation works through several integrated processes and technologies. It begins when your AP department receives invoices via email, electronic data interchange (EDI), or traditional mail. The invoices are then scanned and digitized by the AP automation solution, and using OCR and machine learning, the automation system captures essential invoice data and validates it against purchase orders or contracts.

Once matched, invoices are automatically routed to the correct approvers based on your predefined business rules, plus, notifications and reminders are sent to ensure timely approvals.

If you have chosen an end-to-end AP automation solution, approvals move ahead to payment execution and the automation platform initiates payments through secure electronic methods. All payment details are then recorded and tracked, giving you real-time visibility into the status of invoices, payment cycles, and overall AP performance. Additionally, the automation platform maintains a detailed audit trail of actions taken, facilitating compliance with regulatory requirements.

What’s an End-to-End AP Automation Platform?

The distinction of an end-to-end a payment automation platform lies in the scope and comprehensiveness of the automation provided. An end-to-end payment automation platform offers a comprehensive solution that covers the entire accounts payable process from invoice receipt to final payment and reconciliation. Features include:

  • Invoice Capture and Data Extraction: Automated handling of invoices from multiple sources and formats.
  • Approval Workflows: Customizable workflows to manage invoice approvals efficiently.
  • Payment Processing: Integration with various payment methods (e.g., ACH, wire, virtual cards) and automation of payment execution.
  • Reconciliation and Reporting: Automatic reconciliation of payments with invoices and detailed reporting capabilities.
  • Compliance and Security: Ensures data integrity and compliance with industry standards and regulations.

A non-end-to-end payment automation platform typically focuses on specific aspects of the AP process rather than the entire workflow. For instance, it might only automate invoice capture and processing but not payment execution. Features often include:

  • Partial Automation: Automates certain tasks like data capture or approval workflows but not the entire AP cycle.
  • Manual Interventions: Requires manual steps for some processes, such as payment execution or reconciliation.
  • Payment Processing May not integrate seamlessly with other financial systems or payment gateways.

Check Payments in Accounts Payable

Despite the rise of digital payments, some accounts payable (AP) departments continue to pay vendors by paper checks for several reasons. One of the primary factors is tradition and familiarity. Many organizations have long-established processes and controls around check payments that are deeply embedded in their financial operations. These processes are often perceived as reliable and secure, with a clear, tangible paper trail that can be followed for auditing purposes.

Another key reason is control over disbursements. Checks provide AP departments with the ability to manage the timing of payments more precisely. The organization can decide exactly when to issue and mail checks, which some financial leaders say aids them in cash flow management.

Additionally, some vendors prefer checks due to their straightforward nature and the flexibility they offer. Vendors can choose when to deposit a check, thus having more control over their fund availability. This preference can influence AP departments to continue using checks to maintain good vendor relationships.

Pros and Cons of ACH Payments in Accounts Payable

Some AP departments increasingly favor paying vendors by Automated Clearing House (ACH) transfers due to several compelling benefits. One of the most significant advantages is cost efficiency. ACH payments are typically much cheaper than paper checks, which involve expenses for printing, postage, and handling. This cost reduction can be particularly impactful for organizations with high transaction volumes.

Speed is another critical factor. ACH transfers are generally faster than mailing checks, enabling quicker settlement and improving cash flow for both the payer and the vendor. This expedited process reduces the lag time between issuing a payment and the vendor accessing the funds, fostering more timely financial interactions and stronger vendor relationships.

ACH payments also offer enhanced security compared to paper checks. With digital transactions, the risks associated with physical loss, theft, or check fraud are minimized. ACH systems are equipped with robust encryption and authentication measures that protect sensitive financial information and ensure secure funds transfer.

Additionally, ACH payments streamline reconciliation processes. Transactions are automatically recorded and can be easily matched with invoices and financial records, reducing manual effort and the potential for human error. This automation leads to more accurate accounting and clearer financial oversight.

Lastly, ACH payments support good financial planning and forecasting. The predictability and reliability of ACH transactions provide businesses with clearer insights into their cash positions, enabling more effective cash management and strategic decision-making.

Pros and Cons of Virtual Card Payments in Accounts Payable

Virtual credit cards have a host of advantages that enhance operational efficiency, security, and financial management in AP operations. One of the primary benefits is enhanced security. Virtual credit cards generate unique, single-use card numbers for each transaction, significantly reducing the risk of fraud and unauthorized charges. This feature makes them more secure than traditional payment methods like checks and some types of electronic transfers.

Another significant advantage is the speed and convenience of virtual credit card payments. Transactions are processed instantly, providing vendors with quicker access to funds compared to paper checks or standard ACH transfers. This promptness can improve vendor relationships by ensuring timely payments and fostering goodwill.

Virtual credit cards also offer robust tracking and reporting capabilities. Each transaction is easily traceable, which simplifies the reconciliation process and reduces the potential for errors. This transparency aids in more accurate financial reporting and auditing, offering detailed insights into spending patterns and facilitating better financial oversight.

Some AP departments indicate they appreciate the financial incentives provided by virtual credit card issuers, such as cash-back rewards or cash rebates. These incentives can translate into substantial savings and additional revenue streams for organizations, making virtual credit cards an economically attractive option.

Additionally, virtual credit cards support better cash flow management. Since the funds are not immediately withdrawn from the company’s accounts, businesses can optimize their working capital and maintain liquidity.

Finally, the use of virtual credit cards aligns with the trend toward digitization and automation in AP processes. Integrating virtual credit card payments into an AP automation solution can further streamline workflows, reduce manual intervention, and enhance overall efficiency.

Integrating Different Payment Methods into Your AP Processes

Most end-to-end AP automation solutions can accommodate multiple payment methods–including check, ACH, and virtual credit card–by integrating various functionalities into a single, cohesive platform. This versatility allows AP departments to manage all types of vendor payments efficiently and securely. So, in essence, you don’t have to choose among them–although virtual card payments have the benefits of dollars back in cash rebates.

Check Payments. For vendors who prefer paper checks, AP automation solutions can typically generate checks with all necessary details and security features. The solution automates the process of printing and mailing checks, reducing manual workload and minimizing errors. The system tracks the issuance and status of checks, providing real-time visibility into outstanding payments and facilitating easy reconciliation.

ACH Payments. AP automation solutions can seamlessly handle ACH transactions, which involve direct bank-to-bank transfers. By capturing vendor bank details securely and initiating ACH payments automatically upon invoice approval, the solution speeds up the payment cycle and reduces processing costs. ACH payments are recorded and tracked within the system, ensuring accurate and timely financial reporting.

Virtual Credit Cards. For payments via virtual credit cards, an AP automation solution generates unique, single-use card numbers for each transaction. This method enhances security and fraud prevention. The system processes these payments instantly, capturing detailed transaction data for easy tracking and reconciliation. It can also manage financial incentives like cash-back rewards or rebates, adding value to the payment process.

Altogether, having the flexibility to choose among various payment methods offers numerous advantages to an organization. For one, it allows AP departments to cater to vendor preferences, thereby strengthening vendor relationships and ensuring smoother transactions. Different vendors may have varying needs and preferences; some might value the traditional nature of checks, while others prefer the speed of ACH payments or the security of virtual credit cards.

Having these choices also enhances financial control and cash flow management. For instance, checks offer precise control over disbursement timing, whereas ACH and virtual credit card payments can speed up the settlement process. This flexibility helps optimize working capital and align payments with the company’s cash flow strategy.

It’s worth noting too that having multiple payment options ensures business continuity and resilience. If one payment method faces issues, such as a banking network problem affecting ACH transactions, the AP department can quickly switch to an alternative method without disrupting the payment cycle.

In summary, an AP automation payment solution that accommodates checks, ACH, and virtual credit cards provides efficiency, security, and flexibility. This range of options benefits both the organization and its vendors, enhancing overall financial operations and relationships.

Set Your Business Up for Improved B2B Payments

If you’re looking for versatility in paying your vendors, an end-to-end AP automation solution is a great option for your organization because you still get all the benefits of automation technology while also providing your vendors payment options.

To learn more about how APSmart and PAYSmart can help manage your B2B payments, please contact CloudX here. With the right solution, you’ll be able to transform your entire AP department, pay vendors quickly and efficiently, and develop better relationships with your vendors.

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