How Automated Payment Services Can Improve Your Business

Aug 11, 2020 by Kelsey Banerjee

If your payment system isn't processing payments fast enough to keep up with expenses, the entire organization comes to a standstill. Automated payment solutions expedite the payment process and provide a stellar customer experience. But there are many other benefits to automated payment systems, as well.

For example, invoice payment automation reduces the cost to process an invoice by 50% and speeds up the average time to collect by 62%. According to an article by The Street, businesses are shelling out $2.7 trillion in chasing payments annually — and they’re also paying between $16 and $22 to process each invoice manually. Ouch.

Worse, it can take up to six days to completely process a single invoice. And if an error needs to be corrected, organizations lose even more time and energy.

The fact is, automated payment systems solve several challenges that AR teams and finance departments are facing today. With each passing year, they become more of a necessity than just a competitive tool.

What problems does invoice payment automation solve?

Although accounting departments often have a suite of tools available, finance teams still spend the bulk of their time manually processing transactions, sending payments, collecting paper checks, reconciling financial data from different sources, and matching an ever-increasing volume of transactions. This process is tedious, time-consuming, and error-prone, tying up top talent and creating bottlenecks.

This manual effort is costly and inefficient but also creates an unnecessary risk of errors. Mistakes can quickly happen when reconciling hundreds or thousands of transactions, comparing bank records against the general ledger or invoices against purchase orders. In addition, many accounting departments need to enter their data into other systems such as enterprise resource planning (ERP), point of service, and inventory management solutions, exacerbating error potential even further.

In addition, the manual method for payment processing must be completed from the office. Even if your team digitizes each payment by entering data into their ERP, they need to be on-site to process paper checks and invoices. As a result, the old-fashioned payment system is difficult to achieve in the era of remote work.

Most traditional financial tools available for businesses today don't work well together, fail to provide enough clean data, and only digitally replicate manual processes. These capabilities are not as sophisticated as they could be compared to modern marketing or customer relationship management (CRM) technology.

As a result of these challenges, the finance team is often overworked and unengaged.

Automated payment solutions can reduce or even eliminate these common problems.

The effect of COVID-19 on payment processing

The COVID-19 global pandemic caused global economic challenges that accelerated the need for businesses to invest in touchless payment processing. The subsequent supply chain disruption and significant price hikes pushed executives to make high-stake decisions to keep their companies afloat as they struggled to get paid.

Those decisions include a financial restructuring focused on improving cash flow that requires optimizing accounts receivable functions. C-suite executives are also calling for better financial visibility so that chief financial officers (CFOs) can increase analysis and work on new long-term strategies instead of managing daily transactions and paperwork.

According to a study by Fundbox, as much as $3 trillion is tied up in accounts receivable departments on any given day, which causes a negative domino effect throughout the industry. The study also found that 68% of companies receiving late payments experienced cash flow problems, and a quarter of those companies were likely to become late payers themselves.

Furthermore, with more and more employees wanting to continue working from home, at least part of the time, upgrading to an automated payment system makes fiscal as well as practical sense.

The difference between digitization and automation

Although the terms digitization and automation are often used interchangeably, they’re actually quite different.

Digitization refers to converting information from a hard copy to a digital format. Many accounting departments do a fair amount of manual digitization, especially between spreadsheets and unintegrated systems, to ensure that financial information exists in the areas needed. For example, consider accountants who manually log time-sheet information from one digital tool into their ERP; or the AR professional who compares digital statements from their corporate bank account and credit card payments.

Some digitization can indeed be done automatically through a computer. For example, certain data can be migrated from one system to another or synced periodically — but this still requires manual interference and is an easily forgotten task.

On the other hand, automation is the next level, improving existing processes. Automation leverages software, using specific rules to complete accounting tasks without human intervention. Automatic reconciliation is one such example.

Companies often mistakenly believe that an ERP system is the backbone of accounting and has already optimized the payment process as far as possible. The problem is, that an ERP system only provides your finance team "full visibility" of their data operations two or more weeks after the month's end. This limits the CFO's visibility for planning and forecasting.

Even with the advent of cloud ERP systems, many teams still have AP and AR processes done manually, keeping the team stuck crunching numbers instead of focusing on higher-level, strategic initiatives.

This typical digitalization through your ERP can be raised to the next level through invoice payment automation, saving you money, speeding up collections, and reducing repetitive tasks by more than 70%. While manual payment processes may be sufficient for smaller organizations, they can hamper growth.

How automated payments work with your ERP

By pairing up invoice payment automation with your ERP, your organization can reduce friction in a wide variety of areas:

  • No more missing or mishandled invoices. Human beings make mistakes, and if a customer fails to receive an invoice or doesn't see a reminder, late payments can occur. An invoice payment automation solution allows you to tie your ERP data together to easily track and report the status of invoices. You'll be able to see when invoices were sent, schedule automated reminders, and flag problem accounts.
  • Lower DSO. Every team wants to reduce their day's sales outstanding (DSO) or past due invoices rates. However, it takes time and effort to chase down delinquent accounts manually. Combining the data from your ERP and your payment solution makes it much easier to automate the collection process. This allows you to gather data for analytics and reporting, helping your team prioritize the accounts posing the highest risk to your organization.
  • Cost-effective invoice processing. Even with an ERP system, roughly 86% of all organizations still submit invoices by paper and fax. By incorporating an invoice payment automation solution, you can reduce manual tasks such as paper handling, filing, scanning, and mailing by 70%. Some Paystand customers have even reduced processing costs by 98% by digitizing and automating their payment process.

9 benefits of invoice payment automation

Invoice payment automation solutions quickly generate a positive return on investment and contribute to a company's overall growth. Here are some key benefits you can expect:

  1. Accelerated time-to-cash. Also known as improving your cash conversion cycle, faster time-to-cash means that you can collect payments more rapidly and therefore have more resources to fund future growth and pay your suppliers. This also means cost savings from faster invoice processing and capturing more early payment discounts.
  2. Reduced manual work. Automating payments reduces manual work for your finance staff. For example, one customer recently eliminated 95% of reconciliation-related data entry. Imagine the benefits of freeing your staff from hours of entering figures and checking whether they're accurate.
  3. Lower payment costs. Digital payments are far cheaper and easier to collect than processing paper checks. Recent research from Ardent Partners shows that automation can contribute to cost reductions of up to 80% compared with manual and paper-based methods.
  4. Minimized errors. Errors in the payment process cost valuable time, damage customer and supplier relationships, and can result in duplicate payments. Having reliable payment automation software that validates data entry and identifies exceptions helps you improve without extra effort.
  5. Faster financial close. Tools that automate payments can help you streamline your financial close with instant three-way reconciliation. Your payments are automatically verified against ERP records, and reports are instantly integrated with your ERP system. The finance team then obtains a consolidated view of all accounts.
  6. Fraud prevention. An automated system in line with PCI-DSS compliance allows you to limit users to authorized functions while simultaneously ensuring that invalid invoices or payments are flagged and reported. These capabilities help safeguard against fraud and related threats.
  7. Increased visibility. Companies can capture more data to support advanced payment analytics and improve reconciliation information. Thus, payment automation is becoming a strategic focus to help finance executives better manage and forecast their cash flow.
  8. Centralized data. You no longer need to invest in multiple applications using a comprehensive payment platform. Instead, your dashboard becomes the headquarters for your payment lifecycle, allowing you to access revenue insights and keep a close watch on customer lifetime value, average revenue per customer, and active recurring revenue.
  9. Stronger supplier relationships. Automated payment solutions offer businesses the ability to self-service with real-time visibility into transaction statuses via a digital portal, which reduces time spent fielding inquiries. Instead, you have more time to improve overall relationships with your suppliers.

Setting up your payment automation system, step-by-step

Significant transformations can result from small changes. When your organization decides to implement automated payment solutions along with your ERP, be prepared to realize ongoing, powerful benefits. Here are some ways to get started:

  1. Evaluate solutions to automate accounts receivable. First, you'll want to weigh all your automated payment system options. Paystand is one automated payments option that incorporates easy-to-use "pay now" buttons in electronic invoices and email reminders. Customers are immediately connected to a payment portal, making it easier to pay quickly.
  2. Offer more than one payment option. The more payment options you can offer your customers, the fewer excuses your customers will have to delay payments. Accepting electronic payments, like ACH payments, instantly or processing credit and debit cards with a convenience fee can reduce customer reliance on paper checks.
  3. Automate flexible payment scenario. Solutions accepting recurring payments or managing subscription-based plans can help you automate collections regularly, so you only manually bill once.
  4. Redirect team focus to a strategic initiative. Give your team more time for high-value and engaging work once automation kicks in. Increased transparency into accounts receivable data can help direct those higher-level initiatives.
  5. Set up effortless customer follow-up. Automated collection processes mean more timely payments and more effortless follow-up. Your payment system will simply send reminders with easy-to-use payment options at regular intervals without human intervention. In addition, problem accounts can be flagged for more dedicated attention.
  6. Eliminate transaction fees. Paystand encourages customers to use its bank network with fee-free transactions. At the same time, consider passing along all or part of the credit card transaction fees to customers who prefer that payment method to recoup these costs.
  7. Optimize financial close. Instant three-way reconciliation means accurate verification against ERP records.
  8. Enhance security. A payment solution like Paystand features built-in protection with automation tools, which protect your transactions, customer payment information, and cash flow from potential fraud and malicious online threats.

Transform Your AR with Payment Automation

Paystand is a digital payments platform that helps businesses streamline and automate payment processing and AR management. We integrate with most ERP software systems and offer flat-monthly pricing to keep your costs low and predictable.

Over the years, Paystand has optimized how many businesses handle their day-to-day financial processes, from invoicing to AR management. For example, Choozle's automation led to a 50% drop in the cost of receivables over 90 days and a one-third reduction in DSO.

If you are looking for ways to manage, optimize, and automate your cash conversion cycle, our experts are here to help your business. To learn more about supercharging your payments process, grab your free copy of our ebook about the competitive advantages of digital payments.