What is a Batch Payment?
A batch payment is a grouping of payments to multiple vendors that are paid from the same bank account. Batch payments can either be processed manually or in an automated manner. However, companies that are still relying on manual processes will face issues concerning time constraints, multiple processes for different payment types, and security and fraud risk.
What is Batch Payment Processing?
Batch payment processing describes when an AP automation software processes all of a customer’s authorized payments and begins the process of paying the vendors. A platform, such as MineralTree, will consolidate all the authorized payments into a single transaction to simplify the reconciliation process on the customer’s bank statement, while still paying each vendor using their preferred method (check, ACH, or virtual card).
What are the Steps to Batch Payment Processing?
For an automated batch payment process the steps are as follows:
- Invoices are approved and payments are created for said invoices
- The payments are then authorized for release by the controller, CFO or CEO
- An AP automation platform performs the batch payment processing to consolidate payments
- The AP automation platform then facilitates payments to vendors as virtual cards, ACH, or check
It’s also possible to do batch payments in a non-automated fashion, but manual processes can create extra work for employees. Many companies do a weekly payment run, where they need to get the invoices approved, get the payments in front of the CFO or CEO to be released, and execute checks. Manual efforts are also more prone to human error, which can lead to duplicate payments and strained supplier relationships.
Since 45% of companies are still using paper checks as their primary payment method, accounts payable teams are also printing checks and stuffing envelopes. Not only is this time consuming, but expensive. For every check processed, a company spends $5.00 on average. Even if just this part of the process was digitized, companies could save $1,000 for every 200 checks they process.
Automated vs Manual Batch Payment Processing
Manual processes cost more money and are more time-consuming for employees. Below are additional differences between a manual workflow and an automated one.
Manual Batch Payment Processing:
Manual batch payment processing is typically done in set intervals, requiring more hands-on approvals. These invoice payments are usually concentrated into a weekly and time-consuming effort.
In a process where an AP department has a payment run with both ACH and check, employees have to sign the checks manually while going to their bank to set up each ACH transaction and then manually create journal entries in their accounting system to mark those bills as paid. Different payment types require new workflows and steps. Additionally, there is no standard schedule. AP teams have to be facilitating the entire process.
Automated Batch Payment Processing:
Automated batch processing pays invoices in a more hands-off manner, while allowing companies to pay vendors across different payment methods in one workflow. Companies also benefit from a standard payment timeline, improved security, and strengthened supplier relationships.
What are the Benefits of an Automated Batch Payment Processing
There are many benefits for accounts payable teams looking to make the switch to an automated batch payment process, including the following:
AP departments benefit by having a single transaction, so they don’t have a flood of individual transactions on their banking statements. This results in a concise and consolidated payment statement.
AP departments don’t need to do multiple steps to start the flow of funds. In hybrid and remote work environments, having a hands-free process can be especially beneficial. In fact, 58% of survey respondents agreed that the pandemic was a catalyst to digitizing the financial function. Reducing steps and consolidating the workflow benefits employees and creates a better process for ensuring payments are sent on time.
Standard Payment Timelines:
With a manual workflow, there is no standard payment timeline. AP teams have to be hands-on and manage the timeline manually. Within an automated batch, an AP automation solution will take all your payments and create standard payment timelines for them.
Standard payment timelines also make it easier for AP departments to ensure that invoice payments are delivered on time to vendors. In a world where 58% of suppliers note that vendor relationships are growing more strategically important, on-time payments matter more.
One Workflow for Different Payment Types:
A traditional manual workflow will require a new process for each payment method. However, automated batch processing can handle different types of payments. Even if vendors require different payment methods (such as ACH, virtual card, or check), these can all be processed in one AP workflow, further reducing the manual process.
Payments move as soon as they’re authorized and can be risky if there are fraudsters or incorrect payment details. With automated batch payment processing, standard timelines allow for greater control on when the payments are being processed, leading to improved security. The payments workflow also includes built-in controls, like segregation of duties, two-factor authentication, and dual approvals for payments over certain amounts.
An AP automation platform, like MineralTree, assumes the burden of managing supplier payment details, including bank account numbers for ACH payments. MineralTree will also optimize the payment mix for ePayments like virtual cards, which are more secure than check and even ACH.
What Challenges do AP Departments Face when Doing Batch Payments?
There are many challenges facing AP departments when doing batch payments. These include the following:
Many teams still rely on manual processes to conduct batch payments. AP departments are, as a result, subjected to increased security risk, human error, and strained supplier relationships.
The Belief that New Payment Methods Mean More Processes:
In a manual world, different payment processes result in new processes that need to be created. Many teams believe that digitized payments and AP automation will have the same problems.
However, when teams move to electronic payments and an automated process, they will have a menu of payment options available that will not disrupt or change their workflow. With an AP automation software like MineralTree, this entire workflow is consolidated, reducing manual processes. This solution will then work with vendors to pay them via their preferred payment method, whether that be ACH, virtual card, or check.
Certain AP departments may wish to see the individual payments that are being debited from their account. To support this, MineralTree has reporting that shows the payments included in the batch payment’s single debit. This allows for customers to see the Transaction ID within MineralTree and match it against their bank statements.
Automated Batch Payment Processing with MineralTree TotalAP
MineralTree’s TotalAP solution automates the entire end-to-end accounts payable process. MineralTree consolidates the group payments into a single debit transaction from the bank account so there is only one line item in the bank statement instead of multiple transactions. MineralTree provides a service that allows customers to batch all their payments and then MineralTree facilitates the payments to the vendors in their preferred methods – Virtual Card, ACH, or check.
MineralTree also has reporting, so that customers can see the individual debits in their batch payments. For more information, schedule a demo with our team.