The rise of payment automation is transforming the B2B payment landscape. While paper checks are still common, digital B2B payment solutions are becoming a more efficient alternative. By adopting digital methods, businesses can speed up issuing, receiving, and processing payments, which helps improve cash flow.
80% of B2B transactions are expected to be digital by 2025 - PYMNTS
Innovative payment technology has made global networking and connectivity easier, but with so many options available, finding the right payment automation solution can be difficult. This blog dives into what payment automation is, its benefits, and how it works.
What is Payment Automation?
Payment automation refers to the use of technology to handle financial transactions and payments automatically, without manual intervention. In accounts payable, it involves using software to manage the entire payment process—from payment approval to scheduling and disbursement. This eliminates the need for manual data entry, reduces errors, and speeds up payment processing.
Automated payment systems can handle various payment methods, including EFTs, ACH payments, virtual cards, and more making it easier to manage payments to vendors.
Payment automation improves efficiency, enhances cash flow management, and reduces the risk of fraud. It allows businesses to focus on strategic activities rather than getting bogged down in tedious, repetitive tasks, ultimately contributing to better financial health and operational efficiency.
How Does Payment Automation Work?
Payment automation streamlines the accounts payable process, offering benefits such as increased efficiency and reduced errors. It involves several key steps, including invoice processing, payment approval, scheduling, disbursement, and reconciliation. Let’s take a deeper look at each step:
1. Invoice Processing
Payment automation starts with receiving invoices electronically. The system reads and extracts key information like invoice number, amount, and due date. It then matches the invoice with purchase orders and receipts to ensure accuracy. This automated process eliminates manual data entry, reducing errors and speeding up the process.
2. Payment Approval
After processing, invoices are automatically routed for approval based on predefined rules. Approvers can review and approve invoices digitally, from anywhere. This streamlines the approval process, ensuring invoices are approved quickly and accurately.
3. Payment Scheduling
Once approved, the system schedules payments based on due dates and payment terms. It can also take advantage of early payment discounts if available. This ensures payments are made on time and helps maximize savings for the company.
4. Disbursement
Payment automation allows automatic disbursement of payment through electronic mediums. These methods are faster and more secure than paper checks. Disbursement is done automatically, reducing the need for manual intervention.
5. Reconciliation
After payments are made, the system reconciles them with the corresponding invoices. It matches payment amounts and dates to ensure accuracy. Any discrepancies are flagged for further investigation. This automated reconciliation process helps maintain accurate financial records and reduces the risk of errors.
What are the Benefits of Payment Automation in Accounts Payable?
Payment automation eliminates manual tasks in the final step of the accounts payable process, creating a seamless link between your procure-to-pay system and payment solutions. Let’s take a look at the benefits:
- Faster Processing Time: For AP teams, saving time means saving money. An automated process speeds up invoice processing and supplier payments, leading to cost savings and less time-consuming tasks.
- Lower Transaction Costs: Electronic payments cost much less than paper checks. According to NACHA, it costs on average $1.22 to process a paper check. So, automating this process and using electronic payments can save businesses a lot of money.
- Better Fraud Prevention: Paper checks are often targeted for fraud. By automating payments, you add extra security with controls, reducing fraud risk. This ensures company financial information stays secure.
- Fewer Errors and Duplicate Payments: Manual AP processes can lead to errors and duplicate payments, wasting time and harming vendor relationships. Automation reduces these mistakes, ensuring more accurate payments.
- Improved Visibility: Payment automation solutions provide more financial data for advanced analysis. This helps finance teams better predict and manage cash flow and allows for strategic financial tools like supply chain financing and dynamic discounting.
- More Discounts: Manual invoice processing often misses early payment discounts. Automation speeds up the cycle, enabling organizations to capture more discounts and optimize their working capital.
- Better Vendor Relationships: Faster payments through automation mean suppliers get paid quicker, enhancing their satisfaction and trust in your business.
How Does Peakflo’s End-to-End Payment Automation Help?
Peakflo’s End-to-End Payment Automation simplifies the accounts payable process by offering a seamless, efficient solution for managing invoices and payments. With features like automated invoice processing, streamlined approval workflows, and secure payment methods, Peakflo ensures that AP teams can easily handle their payment processes, saving time and reducing errors. Let’s take a look at how Peakflo can help:
- Utilize AI-driven OCR and automated 3-way matching for simplified invoice processing.
- Ensure payment security by verifying vendor information and bank details before transactions.
- Seamlessly manage cross-border payments with multi-currency support.
- Tailor approval workflow to fit your company’s needs and approve on the go.
- Schedule, process, and track payments effortlessly.
- Maintain detailed audit trails for a transparent payment workflow.
- Automate the generation of financial reports to stay on top of essential metrics.
- Automate reconciliations to expedite month-end processes with minimal errors.
Closing Thoughts
Payment automation is more than just a trend; it’s a necessary evolution in accounts payable. As businesses embrace payment automation, they not only streamline processes but also redefine how they value time. It enables businesses to streamline their accounts payable processes, enhance vendor relationships, and improve overall financial management.
FAQs
How to select payment automation software?
When choosing payment automation software for accounts payable, thorough research is essential as each business and platform is unique. The primary criterion should be its capability to handle all invoice processing scenarios efficiently, ensuring maximum time and cost savings. Additionally, compatibility with your existing enterprise resource planning (ERP) system is crucial for seamless integration and minimal manual intervention, enhancing the overall efficiency of your accounts payable process.
Can payment automation help with regulatory compliance?
Yes, many payment automation tools include features designed to ensure compliance with financial regulations, reducing the risk of non-compliance. Businesses should ensure compliance with regulations such as the Payment Card Industry Data Security Standard (PCI DSS), General Data Protection Regulation (GDPR), and Anti-Money Laundering (AML) regulations.
Are there downsides to payment automation?
While some might believe that payment automation comes with security risks, it reduces risks while improving oversight and efficiency. One potential downside could be the initial cost of implementation, but the long-term savings and benefits usually outweigh this.
What is vendor payment automation?
Vendor payment automation is a tool that businesses use to automate payments to their suppliers. It saves time and ensures payments are made on time.
What’s an example of payment automation?
Businesses can automate payments for various expenses, like rent, equipment payments, or payments to suppliers. For instance, a bakery can set up automated monthly payments for ingredients.
