Simplify Payments and Business: A Guide to Payment Automation

In accounts payable processes, invoices often get paid late due to hard-to-track approval processes. Even after an invoice has obtained all necessary approvals, payment processing might get delayed due to bottlenecks in the payment approval process. 

Payment automation successfully removes these challenges from the process by allowing approvers to approve, reject or hold a payment easily from anywhere worldwide. 

What is payment automation?

Payment automation is leveraging technology to process payments to a company’s vendors with minimal human involvement. Payment automation helps companies prevent delays and mismanagement with manual payment processing. It also makes it easier for payment approvers to get context before processing a batch of payments. 

Steps involved in payment automation

Invoice processing

Before processing a bill for payment, it is essential to enter invoice data into the accounting system carefully, assign it to the correct cost centers and GL codes and get the necessary approvals. The invoice journey should also be entered in the journal whenever necessary. Companies might adopt invoice automation to reduce the manual work required in these tasks and sync all details back to the accounting system. 

Payment approval process

Some companies require strict approvals to process payments to vendors. The approver might approve, reject or hold the payment based on his judgment. He might also process the payment earlier or later than scheduled to preserve cash flow or capture early payment discounts. 

Payment execution

After the payment and payment date have been decided, the payment is processed via the vendor’s preferred payment method. After the payment has been processed, it is entered into the accounting system to maintain the accuracy of records. 

Types of payment execution automation

Payments can be executed using ACH, checks, credit cards or wire transfers. All these methods involve multiple steps that can make the payment process painful. 

ACH

ACH or automated clearing house payments is a secure method of transferring funds from the sender’s bank account to the recipient’s bank account. It is important to ensure that the recipient’s details are correct for processing ACH payments. 

Vendor details such as an account number and a routing number are required to process an ACH transaction. Payment automation helps companies securely store and verify such sensitive vendor information securely at a centralized location. 

Check

A check is a written order drafted by the sender asking for the transfer of funds from the payer’s account to the recipient’s bank account. Payment automation helps you securely save vendor details such as Payee name and vendor address to facilitate data availability for check payments. Some companies also print and mail checks for their customers, reducing the manual workload on accountants. 

Wire transfers

Wire transfer is another method of transferring funds electronically from the payer to the recipient’s bank account. It is a fast mode of transferring funds but might come with high additional charges. 

Credit cards

Credit cards have become a prevalent mode of payment due to easy and fast fund transfers. With credit cards becoming more widely accepted, companies have adopted credit card payments to pay their vendors. Most cards also come with added benefits such as cashback or a reward system. They are also straightforward to automate.

Benefits of payment automation

Timely payment processing

Automated payments help accountants process payments to their vendors on time. Delayed approval processes due to unavailability of approver can lead to hefty late payment fees or spoiled vendor relationships. Payment automation helps mitigate these risks by allowing approvers to easily approve payments from a remote location. 

Increase productivity

Payment processing and entering payment data into the accounting system takes up a huge chunk of the accountants’ bandwidth. Automating payments will allow accountants to free up their time performing mundane tasks and focus on strategic planning. 

Avoid errors

Processing invoices and payments manually can lead to errors slipping in. If these errors go unnoticed, they can lead to hefty losses. Payment automation helps prevent human errors from slipping into the process. 

Reduce costs

The cost of processing an invoice is a very important accounts payable KPI. Manual tasks reduce productivity of both accountants and payment approvers, leading to more time taken to process a single payment. Automating the payment process can help in faster payment processing, increasing productivity and reducing costs. 

Safeguard against fraud

Verifying vendor details and ensuring a secure method of communication and payment is important to prevent getting caught up in fraud. Fraudsters can easily intercept email threads and replace payment details, leading to the company transferring funds to a third-party account. Frequently verifying vendor accounts and routing numbers can also help prevent ACH fraud. 

Facilitate better vendor communication

Good payment automation softwares helps you automate important vendor communications such as payment initiation or payment failure easily. This helps facilitate better vendor relationships by keeping the invoice processing journey more transparent. Accountants also have to spend less amount of time tracking and following up with vendors.

How to implement payment automation

Selecting the right automation tools for your company can be a challenging task. A lot of considerations need to be taken into account before selecting the correct payment automation software. 

• Make sure to select a software that supports multiple payment methods, especially those preferred by your vendors. 
• A good payment automation software should reduce your overall manual work. Select a tool that seamlessly integrates with your invoice automation and accounting software to facilitate two-way data transfer. 
• Businesses are constantly growing and evolving, but switching softwares is always a hassle. Select a software that scales with your business, so you don’t have to deal with constantly changing softwares. 
• Ensure your software is capable of processing a high volume of invoices in case of a surge without compromising any workflows. 

Selecting an end-to-end AP automation software that seamlessly integrates with existing softwares can help you streamline your accounts payable processes. It allows you to process invoices and payments via a single platform, without the need of a two-way sync. It also allows you to automatically sync the entire invoice journey from receive to pay to the accounting system, reducing the need of manual intervention. 

An end-to-end accounts payable software also provides a complete invoice trail, which can be useful when conducting internal or external audits. Softwares like ClearTech also easily identify duplicate invoices and duplicate payments easily, reducing the risk of fraud. 

Conclusion

• Payment automation uses technologies such as machine learning and artificial intelligence to reduce the manual work involved in vendor payments. 
• Payment automation can be done for payment methods like ACH, Check, credit cards and wire transfer. 
• The steps involved in the payment automation process are invoice processing, payment approvals and payment processing. 
• Automated payments can aid timely payment processing, increase accountants’ productivity, avoid manual errors, reduce processing costs, safeguard against fraud and facilitate better vendor communication. 
• It is important to select a software that integrates seamlessly with your other accounting software and supports multiple payment methods.  
• Adopting an end-to-end AP automation software can help businesses streamline their accounts payable processes.