How Digital Payments are Changing Accounts Payable

Digital payments are paving the path to the future of Accounts Payable (AP). Although 97% of businesses still pay a portion of their suppliers by check, savvy organizations are cutting ties with outdated payment methods and turning to faster and more reliable digital methods.

Adopting electronic payments like ACH, virtual cards, wire transfers, and real-time payments empowers businesses to improve efficiency, security, and visibility while also lowering costs and saving time on manual processes. In this blog, we explore the reasons why digital payments are imperative for modern finance and AP teams.

What are Digital Payments?

A digital payment, also called an electronic payment or ePayment, is a payment made without exchanging physical cash or checks. Instead, these payments involve the transfer of funds from one account to another via a digital device or transaction. Digital payments may occur via direct bank transfers, financial transactions made using mobile phones or computers, or payment cards such as debit, credit, or virtual cards.

Often chosen due to their ease and convenience, digital payments are more complex under the surface than simple cash transactions. And because they involve the electronic transfer of funds and may require exchanges between multiple intermediaries, encryption and security are paramount. However, while some forms of digital payment may incur a transaction fee, they tend to be cheaper overall than cash or check payments due to the reduction in manual labor and the cost of paper, printing, checks, and postage. They are also more secure and require less involvement from finance departments to execute.

The following list provides a summary of the different types of digital payments:

  • ACH Debit Pull: Often used for payroll, direct deposit, and online payments, ACH debit pulls rely on an electronic batch payment system in which the payee requests a “pull” of funds from the payer’s account.
  • ACH Credit Push: Commonly used for repeat vendor payments, an ACH credit push uses an electronic batch payment system in which the payer initiates the transaction by “pushing” funds into the payee’s account.
  • Credit Card: Often used for retail and online purchases, credit cards enable spending of borrowed money up to a predetermined limit.
  • Debit Card: These are used and work similarly to credit cards, but are instead tied to a bank account with funds being withdrawn from the account instead of borrowed from a line of credit.
  • Commercial Card: These cards are issued to employees to enable direct payment from corporate lines of credit for business-related purchases.
  • Virtual Card: These non-physical cards work much in the same way as other card payments, but they enable tokenized payment via a one-time use 16-digit code that authorizes only a specific payment amount.
  • Wire Transfer: This is a real-time transfer of funds between accounts often initiated via a phone call or electronic request.

Most businesses end up using multiple different payment types because each vendor or service provider has different needs. This means that AP departments must be able to efficiently manage each type of payment method with an integrated payables or AP automation solution.

The AP solutions offered by MineralTree help organizations optimize their payment processes and choose the most efficient payment methods for each transaction. By streamlining your payables process and consolidating multiple payment types into a single payments workflow, you can reduce costs, increase security, maximize card rebates, and maintain positive supplier relationships.

Benefits of Digital Payments in Accounts Payable

The benefits offered by digital payments are many. Digital payments make it easier for AP departments to process payments, enable real-time visibility into company financials, and more. The most significant benefits are described in the following sections.

 Less Manual Work

Paper check payments require printing, signing, stuffing, and mailing, not to mention the work required by your suppliers to deposit and process those checks. Sending a payment electronically, on the other hand, requires just a few clicks on a computer screen. The manual processes associated with check payments also often involve handling paper purchase orders and invoices and reconciling multiple documents.

Using a fully digital AP system to handle this paperwork reduces manual labor even more, especially when automated workflows are deployed. In all, both time and money are saved and errors associated with manual data entry are also reduced.

Enhanced Security

Digital payments typically leave less room for payments fraud. Whereas paper checks can be intercepted, electronic payments are heavily encrypted by some of the most robust technology available. Some digital payment methods, such as virtual cards, are even safer due to their use of one-time-use numbers that do not reveal sensitive credit card or bank information. Digital payments are also traceable as well as easier to reconcile due to there being less room for manual input errors.

Improved Internal Controls

By using an AP system in which digital payment options are fully integrated, it’s easier to maintain control over invoice approval and payment authorizations. Payments that are then issued digitally using technology such as virtual cards further limit payments to only pre-approved transactions.

Complete Visibility

Integrated digital payment systems can provide improved visibility into the entire AP process for both your business and your vendors. For example, MineralTree’s TotalAP enables central management of the entire invoice-to-pay process, ensuring consistency and visibility across user roles, business units, and locations, and allows vendors to view the status of payments as well as important account metrics.

Easier Global Payments

Digital payments are great when it comes to paying invoices from other countries. Since digital payments are made electronically, not only is there no need to worry about distance or overseas mailing of checks, but currency conversion happens automatically as well.

A high-quality AP system can also improve traceability and visibility–both common issues when it comes to international payment. Electronic payments also reduce the time it takes to receive payment, which can be quite long for less advanced payment methods, especially when it comes to navigating different banking institutions and regulations.

Strengthened Supplier Relationships

Supplier relationships are vital to any organization that wants to remain competitive in today’s marketplace. If suppliers consistently receive payments late, struggle with getting information about invoices and payment requests, and can’t easily find what they need from you, this can put a strain on the relationship.

Digital payment strategies and AP systems that prioritize ePayments and process automation can help improve vendor relationships by facilitating faster payments and improved visibility and reconciliation.

Lower Costs and Cash-Back Rebates

The more payments that are processed electronically, the fewer that must be processed manually–utilizing additional time and resources such as printing and mailing. Improved efficiency and speed don’t just reduce costs in terms of work time, but they allow your company to take advantage of early payment discounts. Digital payment options like virtual cards also offer cash-back rebates for each use.

How to Adopt Digital Payments with MineralTree

MineralTree not only supports digital payments, but all payment types including checks, ACH, FX, and virtual cards. Our system makes it easy to integrate with hundreds of the leading ERPs and accounting systems, so you can take full advantage of digital payments while keeping invoice and payment data in sync with your system of record

MineralTree’s free, secure virtual card payment method even allows you to create a revenue stream simply by paying your vendors. Virtual cards are delivered to your vendors via email or a self-service portal and are processed just like a credit card. It’s faster than ACH, more secure than check, and fits seamlessly into your current workflow.

And if your AP team lacks the capacity to contact suppliers about accepting ePayment methods,
MineralTree also handles supplier enrollment and ongoing support for you. Contact MineralTree today to learn more.


MineralTree

We're transforming accounting by automating Accounts Payable and B2B Payments for mid-sized companies. Our award-winning solution has helped over one thousand businesses transform accounts payable from a source of inefficiency and fraud risk to a secure and strategic profit center that provides visibility into key cost drivers.