As your startup grows, keeping track of your vendors gets complicated. You’re juggling tracking down vendor information, invoice processing, payment preferences, and a growing list of contacts. Not only that, you’re manually pulling data from bills to build (and maintain) approval policies.
You and your team are already strapped for time. Even with the right employee at the helm, it’s time-consuming and tedious.
What if there was a way to automate it all?
Vendor payment systems automate most of the payment process, so you and your teams can focus on making money — not payments. You may have heard about these systems already, but here you'll learn more about them, how they work, and whether you should use one.
What Is A Vendor Payment System?
In a nutshell, a vendor payment system is a cloud-based platform that automates your accounts payable (AP). Using one of these systems, you can reduce the amount of time and work it takes to make payments for goods and services. AP automation removes the bottleneck created by manual billing, paying, and collecting.
How Does A Vendor Payment System Work?
When you receive a supplier invoice, the payment process generally looks like this:
- A member of your team manually enters the invoice information.
- You review the purchase order, goods receipt, and invoice to ensure they match up.
- If you identify any errors, you collaborate with the vendor to fix them.
- Your controller or financial officer authorizes the payment.
- You pay the vendor, often by check.
If you manually do this for multiple vendors, it can eat into your productivity.
There's also the human factor to consider. When you're slogging through spreadsheets, toggling tabs, and trying to keep track of what you owe, when, and to whom, you're bound to make a mistake. Automation reduces the time and likelihood of errors.
A vendor payment system digitizes — and centralizes — the process. No more string-mapped bulletin boards to organize your vendors, their commitments, and payment schedules. You set up your Bill Pay preferences, map out your approval flows, and create vendor profiles. The software takes over from here.
Simply scan or upload your invoices (depending on how they were sent) into the platform. Then, it automatically "reads" the document, populates vendor information, and pushes the bill into an approval flow for payment.
The resulting process (from a human perspective) is this:
- You upload the invoice into your system.
- Your vendors get their payments.
How To Set Up A Vendor Payment System
A vendor payment system will quickly become your best friend when put into place. It's no surprise, then, that many providers offer these solutions. You have quite the choice of systems, so it helps to shop around and find the one that best fits your needs, experience, and preferences.
Here's how we recommend you go about doing this.
1. Choose A Solution That Supports More Than Just Accounts Payable
When looking for vendor payment software, find a solution that will not only make your AP processes easier but also streamline your entire financial operations. Look for a platform that pulls all of your bill pay data and data across various finance functions (like daily bookkeeping, reimbursements, and burn rate) into a single place so you can have a clearer picture of your overall financial health.
2. Determine What Bank To Use For Payments
When you find the system you like, your first step is usually creating an account and adding your bank information. Consider a separate bank account for payments. Set budgets for different departments and allocate that amount of money into that bank account. Generally, it’s always best to spread your money out across different accounts because of insurance limits and in the rare event of a bank collapse.
3. Confirm Identity and Company Verification
Most secure systems will ask you to verify your identity, both personal and business, so have your SSN and EIN numbers ready. This is standard practice for all financial services and institutions to comply with the BankSecrecy Act (BSA) and Anti-Money Laundering (AML) regulations. Plus, it gives you a level of confidence that your financial information and money are secure no matter who you are giving payment permissions to internally.
4. Input Vendor Payment Details
Depending on your chosen platform, you might need email addresses, product codes, payment reference numbers, or payment dates specific to that vendor. You’ll also want to ensure you categorize each payment properly for accounting purposes, including the Account Category, Class (department), and Vendor type.
If you operate internationally, you'll also need to use the vendor's preferred currency. Generally, this is a "set it and forget it" step, so it's worthwhile to input as much information up-front as possible. That way, when invoices come through, you won't need to micromanage.
5. Customize Approval Flows
The best way to ensure everyone who is a part of the AP process is staying on top of payments is to set up approval workflows and rules – and with the best systems, you set these up, leave them, and go! Do this by looking for a system that lets you add multiple layers of approvals and set amount thresholds to chain approvals within your organization.
Why Should You Use A Software Solution To Manage Vendor Payments?
The right software can save you time and money and solidify your reputation as a great company to do business with. You're also building positive relationships with your vendors and confirming your business's future success thanks to your good reputation with suppliers.
Vendor Payment Automation
Automated vendor payment software reduces the time it takes you to get through the accounts payable process by streamlining mundane tasks like document processing, data entry, and electronic payments. This means as the payee, you pay less for the effort it takes to make payments to your vendors and free up valuable time and human resources better spent on growing your business than on verifying payments.
Initiate And Track Vendor Payments With Ease
A vendor payment system makes it easier for your business to pay its vendors because it automates manual tasks that take up your team's time. Your vendors get paid quicker, your employees are free to focus their efforts elsewhere, and you still get to track your payments in real-time. What's not to love?
If you’re ready to start looking for an AP solution, check out our list of the best accounts payable software for startups.