Today, writing a check for groceries or gas is rare. Yet, more than 50% of companies pay vendors with a check. These payments are typically sent through the mail, increasing the chances of loss or theft. How can such an archaic process be used for high-value transactions?
Checks remain an integral part of how companies pay each other but this comes at a price. In fact, they cost businesses an average of $31 per transaction. If you send 1,000 checks a month, that’s over $30,000 in processing fees alone.
This is why an epayables solution is the preferred method of payment for modern brands.
What are ePayables?
ePayables are essentially virtual cards that act as electronic payment alternatives to paper checks, where each vendor is assigned a card. A company’s AP department will send an electronic file to their bank once an invoice has been approved, notifying the bank how much money should be added to a vendor’s card.
The best way to describe the ePayables process is to compare the system to using a credit card online. The physical card is never present. In the case of ePayables, it has a 16-digit card number, an expiration date, and a card verification code (CVC).
The only difference is that a physical card never exists for ePayables. Everything is done virtually. This makes it ideal for business transactions online and over the phone.
Virtual vs. Single-Use Accounts
While the ePayables process will differ from one financial institution to the next, the system generally fits into two categories: virtual accounts and single-use accounts.
With a virtual account, the buyer assigns a virtual payment card to a specific vendor or department. This enables the purchasing company to easily track spending on a supplier basis or by a business center.
When you are using a single-use account, it’s exactly as it sounds. A unique, virtual card number is generated and transmitted to a supplier at the time of payment.
How do ePayables Work?
The card automation process of epayables is fairly simple. It begins when the purchasing authority provides a dedicated credit card number to the supplier to keep on file. When the time is ready, the supplier then sends an invoice to the buyer. The AP department looks over the invoice and submits it for approval.
Once the invoice is approved, payment is ordered and the supplier’s credit card account is funded with the payment amount. This is typically done in a bulk payment to an entity like Bank of America with notes on which cards to fund to the appropriate vendors. The bank will then process the A/P file and find the specific card numbers to add money.
During supplier enrollment, a vendor will give their contact information and the best way to reach them. Once a card is funded for payment, the supplier receives a notification via their preferred method. Payment information and remittance advice is usually sent through email and can be addressed to more than one person or party.
The supplier will then process the payment by drawing down the amount of invoices paid and charging the card number. It is then reflected on the credit card account for the exact amount. When everything matches, the vendor has been paid successfully.
What are ePayables Fees?
ePayables are processed like credit card transactions, so standard merchant rates will apply. Market average rates are between 1.5%-2.9% for swiped cards and 3.5% for keyed-in transactions. The average costs for the four major networks are:
• Discover – 1.53% – 2.53%
• Visa – 1.29% – 2.54%
• American Express – 1.58 – 3.30%
•Mastercard – 1.29% – 2.64%
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EFT vs. ACH Payments
ePayables and ACH payments are both considered to be an EFT (electronic file transfer). The payment terms are generally similar and transactions are processed in batches. However, ePayables have more autonomy.
A transfer made through the Automated Clearing House Network (ACH) is also referred to as a check. It’s a way to move funds between accounts without all the paperwork. The ACH will process inter-institution transfers in large batches at specific times during the day. A business is limited to the actions of the ACH.
ePayables will not go through a network. This method leverages the credit card system, where every vendor is assigned a specific number. While the ACH will keep payments in bulk during transfer, ePayables will distribute the funds according to vendor CC numbers.
What are the Benefits of ePayables?
As the payment industry moves increasingly toward paperless processes, it is critical to understand the advantages of an ePayables program and how it can elevate your business. It can provide multiple benefits for both your company and the vendors you work with, like:
Expedited Payments
Usually, ePayables’ payments are available within 2 business days (or 48 hours). Compare this to the lengthy time of issuing checks with a standard net of 30+ days.
Improve Cash Flow
ePayables give your brand the opportunity to earn rebates based on your business spend. This helps to turn your accounts payable department into a place that generates revenue. The expedited receipt of cash also improves Days Sales Outstanding reports.
Enhanced Reporting
In addition to detailed vendor account information, ePayables gives a business enhanced remittance information for more efficient back-end reconciliation.
Simplify Administration
Card payments are faster and easier to process than paper checks. They require less labor and help save a business precious time.
Reduce Costs
An ePayables solution eliminates the need for paper checks. Loading, printing, and disbursing checks can add up to a significant expense. This is particularly the case if you add in the cost of labor and the expense of tracking lost or stolen checks.
Streamline Payment
An electronic payment system will automate the reconciliation process by integrating with your legacy and ERP systems. This releases your business from the manual work associated with processing vendor payments. Ap automation also enables employees to perform higher-value work.
Mitigate Risk
An epayables payment solution enables vendors to process everything via a safe and secure platform. This reduces the possibility of any lost or stolen checks falling into the wrong hands.
The ePayables Future is Bright
So if the ePayables system has all these benefits, why are only half of the companies in the world using it? Part of the reason is it requires some change management and solution integration. This means you need full buy-in from all corners of the business, from procurement to AP and senior staff.
Another reason is that the process for accepting ePayables is not yet standardized. Every buyer’s financial institution has slightly different instructions for a vendor to complete enrollment.
However, the ePayables process is constantly improving. New tools and solutions are removing perceived barriers and hesitation. One example of this is straight-through processing (STP) which requires no action from the supplier. The buyer initiates the payment and charges the virtual card themselves.
The key takeaway here is that eventually check payments will become obsolete. It’s better to invest now and future-proof your business for disruptive financial trends. That starts with integrating a smart ePayables system today!
