Payment automation is the process of using technology to automate the payment of invoices and bills to your vendors and suppliers. It is a way of streamlining the accounts payable (AP) process and reducing manual work, errors, and costs. Payment automation can also improve your cash flow, supplier relationships, and data visibility.

What is payment automation?

Payment automation is using automation technologies to automate B2B payments to vendors and suppliers. The payment procedure is one component of the accounts payable (AP) process, which is itself a part of the broader procure-to-pay (P2P) workflow. A seamless payment process is essential because timely payments are crucial for maintaining the vendor’s financial stability and ensuring the punctual release and delivery of goods.

Payment automation mostly, but not always, is done via Automated Clearing House (ACH) transfers:

–       The payee creates a payment order (PO)

–       The originator bank receives it

–       The originator bank will compile all the POs and send them to an Automated Clearing House (ACH)

–       The ACH operator approves and releases the PO amount to the recipient bank

How does payment automation work?

Payment automation works by integrating your ERP system with a payment automation solution that can handle different payment methods, such as check, ACH, virtual card, and wire. The payment automation solution will also provide features such as:

–       Invoice matching: The solution will match the invoices with the POs and receipts to ensure accuracy and avoid duplicate payments.

–       Approval workflow: The solution will route the invoices to the appropriate approvers based on predefined rules and criteria.

–       Payment scheduling: The solution will schedule the payments based on the invoice due dates and your cash flow situation.

–       Payment execution: The solution will execute the payments through the selected payment method and send remittance information to the suppliers.

–       Payment reconciliation: The solution will reconcile the payments with your bank statements and update your ERP system accordingly.

What are the benefits of payment automation?

Payment automation can bring many benefits to your business, such as:

–       Faster cycle times: Payment automation can reduce the time it takes to process and pay an invoice from days or weeks to hours or minutes. This can help you capture more early payment discounts, avoid late payment fees, and improve your working capital management.

–       Cheaper transactions: Electronic payments are far cheaper than paper checks. According to a study by Ardent Partners, the average cost of processing and paying an invoice is 20 euros, while the average cost of an electronic payment is 3.50 euros. By switching to payment automation, you can save up to 82% on transaction costs.

–       Fraud prevention: Electronic payments are more secure than paper checks, which are vulnerable to theft, alteration, or forgery. Payment automation can also reduce the risk of internal fraud by limiting access to sensitive data and enforcing approval controls.

–       Reduced errors and duplicate payments: Payment automation can eliminate human errors that can lead to overpayments, underpayments, or missed payments. Payment automation can also prevent duplicate payments by verifying the invoice data against your ERP system and flagging any discrepancies.

–       Increased visibility: Payment automation can provide you with real-time data on your payment status, cash flow, and spending patterns. You can use this data to generate reports, analyze trends, optimize processes, and make better decisions.