Why Every Business Needs Vendor Payment Automation

Automating vendor payments is a way to streamline accounts payable, reduce errors, and protect your business from payment fraud.

Some of the biggest pain points for most organizations today relate to accounts payable processing. And it’s not all just about how an AP department manages invoices either; it’s about how well payments are handled and the quality of vendor relationships across the business lifecycle.

In this blog, you will learn:

• What automated vendor payments are.
• The benefits automated vendor payments can bring to your organization.
• How end-to-end AP automation solutions like APSmart and PAYSmart can build efficiencies across your AP department.

But first …

What Are Vendor Payments?

Vendor payments are methods of remittance for goods or services sold and can include checks, cash, wire transfers, credit cards, ACH credits, virtual cards, and other types of digital payments. Most businesses use a combination of these payment types to satisfy outstanding invoices, but digital payments are increasing each year as check issuance continues to decline.

Looking a little closer at numbers, a survey by J.P. Morgan found that check payments in the U.S. and Canada were at approximately 26 percent in 2022—a 9 percent decline from 2019. On the other hand, ACH payments rose to 39 percent that same year. These changes have been attributed partly to global challenges since the pandemic as well as advancements in payment technologies.

What is Vendor Payment Automation?

Vendor payment automation is a type of software tool that businesses use to make vendor payment processing faster, easier, and less prone to errors and fraud. Once invoices are approved and ready for remittance, vendor payment automation steps in to pay vendors according to their specified payment methods, record the settlements, and archive all digitized documents.

When it comes to vendor payment automation, a good solution will not only store information like vendor names, preferred payment methods, and payment history in a centralized location, but it will also pay vendors in single or batch format and keep records of who processed the payments and supply the dates and times payments were made.

How Does Vendor Payment Automation Work?

In general, vendor payment automation is a software solution that’s part of a larger procurement-to-pay (P2P) workflow and it functions best when used together with accounts payable (AP) automation software like APSmart. Together, these technologies form an end-to-end accounting solution able to expedite the entire AP process—from purchase order, invoice, and goods receipt all the way to statement matching, payment processing, reconciliation, and archival.

Looking more specifically at the payment portion of the P2P workflow, vendor payment automation comes into action once an authorized representative approves invoices and forwards them to a designated staff member for payment. If an AP automation solution is in place, these invoices will already have been converted to digital format before moving to the payment solution’s digital workflow.

Overall, automating vendor payments is an important final step in the accounts payable process, but it’s one that isn’t widely implemented yet. In fact, a 2021 Institute of Financial Management (IOFM) report found that only 27% of finance departments were automated from end to end, possibly due to continued reliance on siloed automation solutions, budget constraints, or type of accounting systems in place.

What Are the Benefits of Vendor Payment Automation?

As more businesses transition to AP automation solutions, the relevance of payment automation is becoming clearer, and here are some top benefits to consider:

Cost Savings

In this new era of digital transformation, the number of B2B check payments continues to decline, but processing them still takes a considerable amount of time and money—around $3 to $6, on average. Considering the costs involved, encouraging vendors to pay electronically with virtual cards could help your business cut back significantly on payment processing since virtual cards are one of the fastest and most economical payment methods available today in the B2B environment.

If your vendors still prefer to receive checks or ACH credits, however, the solution you choose should store payment information securely and be able to automatically verify remittance and account data when invoices are presented for payment.

In addition to saving on payment processing costs, vendor payment automation can:

• Decrease or eliminate late fees and associated penalties.
• Help eliminate mistakes that cause overpayments, duplicate payments, and missing payments.
• Reduce material costs from paper-based processing and archiving.

Potential For More Cash Rebates

When you employ a vendor payment automation solution, it’s much easier to track payment cycles and due dates, which helps your organization avoid penalties and late fees. Additionally, paying on time makes it possible for your business to gather cash rebates of up to 1% per dollar of spend whenever virtual cards are used to pay vendors; this is double the amount credit card rewards typically can offer.

Besides the above benefits, virtual card information can be entered and stored at vendor onboarding, alleviating you from having to re-enter payment data each time you pay an invoice.

As you increase your automation capacity, getting vendors to accept virtual card payments is an important step in lowering payment processing times and gaining eligibility for cash rebates. Not only that, but virtual card payments are some of the most secure forms of electronic payment available today—a fact both vendors and stakeholders will appreciate knowing.

Stronger Vendor Relationships

Anyone with a growing business knows that maintaining positive relationships with vendors is going to be one of the keys to scaling successfully. That’s why implementing a vendor payment automation solution is so important. By using one, your team will be able to reduce invoice processing times, provide vendors more visibility into the statuses of pending invoices, and pay vendors on time. Altogether, this helps prevent misunderstandings between you and vendors in addition to warding off potential supply interruptions.

When selecting a payment automation solution, look for one that’s able to consolidate all payment types into a centralized platform so that all payments and pending payments are visible. Additionally, make sure the software provider is proactive in communicating with vendors and is willing to encourage them to accept payments via credit card and virtual card.

Better Fraud Management Practices

With payment fraud on the rise, many businesses are looking for ways to reduce their risk while still keeping operations running smoothly. In this regard, adding vendor payment automation to your AP workflows can help do some of the following:

• Reduce and eliminate fraudulent invoices. Because only approved invoices can be paid out, invoices without proper approvals are flagged and managed before they even reach the payment stage. If duplicate invoices appear, they are marked for review. Additionally, all incoming approved invoices must match vendor data on file in order to be paid out.
• Reduce check use. A large percentage of payment fraud involves paper checks. As you switch vendors over to virtual card, credit card, and ACH payments, you will effectively lower the risk of check fraud and theft in your organization.
• Prevent internal tampering. A well-performing automation solution will record every transaction across the payment approval cycle including name of processor, date, and time. This deters individuals from attempting to modify invoices, payment amounts, and payment methods.

Improved Audit Controls

Accounts payable automation and payments automation, when combined, have become game changers in audit trail management recently. Along with being able to record all transactions and details of invoice processing, these software solutions are able to document activity across every stage of payment and reconciliation. 

Overall, the solutions can detect errors, assure compliance, support your SOPs, and provide full visibility of your accounts payable transactions.

What Are the Benefits of PAYSmart?

PAYSmart by CloudX is a vendor payment automation solution that centralizes payments of all types into one combined workflow. It’s part of an end-to-end accounts payable solution that, when combined with APSmart, automates, digitizes, and monetizes your entire AP processes.

With PAYSmart, you can choose to pay pending invoices individually or pay them in batch format. You can also choose how to pay vendors—whether by check, ACH, credit card, or virtual card. And because PAYSmart integrates seamlessly with your accounting system, your payment statuses and history are continuously updated.

As a premier vendor payment automation provider, CloudX will validate all vendor information at onboarding and help vendors expedite the payment methods that work best for their businesses. While virtual card use is encouraged, vendors ultimately have the final decision in how they get paid and can choose to modify the payment method at any time. In addition to this benefit, vendors will always have real-time visibility of their payments and supporting details along with a vendor portal to communicate information and ask questions.

Ready To Get Started With Vendor Payment Automation?

If you want to make simplified payments, streamlined AP processes, and valuable cash rebates part of your next strategic plan, please contact CloudX today for a no-obligation demo of our APSmart and PAYSmart automation software solutions.