The Bad Side of Intermediary Accounts

People prefer direct flights over connecting flights when traveling because it’s the easiest, most efficient way to reach their destination. Connections can add unnecessary costs, stress and travel time to trips – even when everything goes according to plan! Connections systematically create a domino effect, so one delayed connection can disrupt your entire trip.

The same principles that apply to connecting flights also apply to accounts payable (AP) solutions that rely on intermediary accounts to make vendor payments. AP solutions that use an intermediary account require funds to travel from your account, to the processor’s account, and finally, to the organization you’re paying. This extra step in the process adds to the time it takes for payments to reach a biller while also weakening security and increasing the risks that something will go wrong.

When looking to modernize AP, companies are often so focused on how easily solutions are able to integrate with their existing systems and workflows that they overlook important details like a solution’s reliance on intermediary accounts. And as many AP pros find out too late, most AP solutions DO use intermediary accounts for payments.

Here are the real risks associated with using intermediary accounts in your AP process:

You have no control over the timing of payments.

Money is debited out of your account before the payment is actually sent to the biller. In addition, you don’t have any control over when that money leaves the intermediary account and is sent to the biller.

Reconciliation issues.

Payments are debited out of your account in a lump sum, making it nearly impossible to directly compare the bank statement to the payments record in the accounting system.

Reduced security.

If you’re uncomfortable with your company’s money going into a third party account, you’re not alone. The risks of being compromised increase every time money is moved and stored in a different account. And for some companies and accounts (trusts, for example) this is a non-starter due to compliance issues.

Returns are a headache.

If the biller rejects the payment or never cashes the check, you have no way of knowing since the money was already removed from your account. And tracking the money down from the intermediary account is often time consuming and complicated.

Someone else is making money off of the float.

This goes back to the slow speed of payments when an intermediary account is used. It’s not good for your company, but could be a benefit for the intermediary. Many companies don’t like the idea of someone else benefitting from their money due to the “float” period between when they take money out of your account and actually pay the biller.


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