There are many payment methods available to a company for accounts payable. Each of them has its advantages and disadvantages. When it comes to choosing one of the methods, it can be overwhelming. Researching each method and trying to apply every one of them according to your need is a very tall task and is not viable for many reasons. Deciding on a payment method is essential to businesses as vague processes could cause a lot of trouble in the future when the demand is at its peak.
Many of our problems are solved by adopting AP automation as it cuts our choices by half. Digital payments are viable with a quality AP automation system. Seeing how everything is getting digitized, this is the route your company should go for as well. If you are researching the best AP payment option you should apply for, you’ve come to the right place. We’ll be going through the most viable digital payment options and why they are as good as the others. Before doing that, let’s first understand what part AP automation plays in all of this.
As the name might suggest, accounts payable automation is the automation of all the included processes. Accounts payable is the portion of a finance department that handles paying vendors and sellers for the received goods and services. In layman’s terms, they are the invoices from suppliers your organization hasn’t settled yet. Handling invoices, keeping track of payments, and other essential tasks are the jobs of the AP department.
Almost every industry is adopting automation of some sort. Jobs that don’t require much human inspection are already being automated to improve efficiency. AP automation is doing the same in a B2B environment. The eCommerce industry is increasing. It has become essential for companies to adopt payment methods. Why? First of all, you need a well-thought-out plan to make sure that you’re meeting the increased demand. Secondly, most companies adopt AP automation, complemented by a laid-out digital payment method. If you are ahead of the competition, chances are you will grow much faster.
Digital AP payment methods
In this section, we’ll go over various digital payment methods that different companies are using:
ACH or Automated Clearing House is a method that most companies use nowadays. There are two types of ACH: Regular ACH and same-day ACH. Regular ACH is a direct payment to the vendor. However, you have to keep in mind that the payment isn’t immediate; it takes three to five days to process. It is like a check but in digital form. As you might’ve guessed, Same-day ACH allows payment on the same business day. It has a constraint, though. The payment must be issued before 2:45 p.m., or it will go out the next day only.
Wire transfers come in second place as the most used payment method. Although the method is faster and easier to adopt, it is not very secure. It comes in second for incidence of fraud, and that says something. Wire transfers are adopted as it provides mobility to the users. You can issue payments sitting at your home. However, banks charge more for wire transfers than other methods like ACH. Many large firms that receive and issue international transactions are the ones that use this method the most.
Purchase cards, also known as company cards, allow goods and services to be obtained without using conventional methods. Purchase cards have put old-fashioned procedures like paper checks out of use. Mostly, this card is provided to trusted employees under specific guidelines that are to be followed. What makes this card viable is the controls that can be put on the card:
- Single-purchase dollar limits
- Monthly review and approvals of purchases by an authority greater or equal to the cardholder
- Specific merchant category modes can also be restricted
Real-time payments are the next trend and for a good reason. Studies suggest that almost one-third of the companies will roll out real-time payments in the next few years. They provide a lot of advantages like immediate fund availability and settlement finality. Apart from these, instant confirmation and integrated information flows are also why companies are attracted to adopting the method. Moreover, real-time payments cost the same as other non-instant payment methods and are lower than conventional methods.
AP automation has been overgrown in the last few years. Many experts suggest the market for it may grow to over $3 billion in the next three years or so. Experts also suggest that digital payment methods will give companies an edge. They can quickly expect processing costs 81% lower than their counterparts and almost 70% faster-processing cycle times.