An efficient working capital plan includes a comprehensive approach with solutions tailored to each business’ specific needs. One thing all businesses have in common is the need to create operational efficiencies, and effective treasury management offers multiple ways to achieve that through a deliberate payables strategy.
Gaining efficiency while maximizing card benefits
Many businesses include card in their payables processes to add flexibility with payments while also leveraging fraud protection and rebate benefits, but there is an electronic solution that goes beyond using a card just for payments. Automating payments through an electronic B2B payables service such as Visa Payables Automation (VPA) offers a more secure way to pay suppliers, streamlines the process and provides additional benefits to businesses.
In simple terms, VPA involves shifting from paper checks to electronic payments, but the impacts extend further than the digital transactions themselves. By deploying a VPA program to an existing accounts payable (AP) process, businesses can reduce time and processing costs associated with paper check through a more secure electronic payment process, which many suppliers prefer due to reconciliation efficiencies. VPA also creates a revenue stream (rebate) from the transactions and provides additional fraud protection for the business.
Another benefit of VPA is that it improves working capital by shifting payments to a virtual card, which can lengthen a business’ days payables outstanding. This is achieved by utilizing the float available via credit card payments, which can extend payments as long as 55 days from the payment date. This can greatly improve working capital, and if businesses are borrowers, it will minimize interest expense because of the reduction in the number of days they are borrowing (utilizing a line of credit).
Full process automation with integrated payables
With the recent rise and sophistication of fraud, many businesses now list it as their top concern in their payment process, and the move to integrated payables is increasing to combat the issue. While VPA streamlines the payment process, an integrated payables solution takes it one step further to create even more efficiencies and significantly reduce the potential for fraud. Integrated payables, from Paymode, automates the payable process from beginning to end by using a single payment file for all payment types, not just card.
This offering not only creates payment efficiencies, but it also offers fraud protection for ACH, which is not found when solely using card. Vendors that accept payment through the network must be enrolled, which significantly reduces fraud since Paymode validates the vendor and eliminates direct contact with businesses from potential fraudsters. Another significant benefit of their network is the size, which at nearly 600,000 businesses currently enrolled, means less vendor outreach and a larger immediate opportunity.
The importance of the right banker
First and foremost, a client’s goal must be payment efficiency for it to be successful. When moving from paper checks to an electronic process, your banker will evaluate your current process, goals and opportunity for each solution. Your banker should also provide recommendations to increase efficiency, reduce fraud exposure and maximize rebates —all while leaving current negotiated payment terms intact. With multiple solutions to choose from, understanding the customer’s objectives, working capital structure and the vendors they do business with is critical. This is why the right bank plays an integral role in the payables process and the outcomes it achieves.
Customized solutions for payables success
Both VPA and integrated payables offer clients many benefits, but misconceptions of each can create potential roadblocks. Many businesses are hesitant to evaluate a payables solution because of the perception of added cost and a concern that their vendors will not accept card payments. The reality is that many suppliers are willing to absorb it because the increased efficiency and payment speed offered is greater than the cost of receiving the payment. Others feel the move to integrated payables sounds expensive and time-consuming, but what many don’t realize is that much of the heavy lifting is done by Paymode, such as vendor enrollment. Additionally, because Paymode provides rebate back from more than just card payments, it offsets the cost. In most cases, it also provides net revenue back to our clients, so don’t be afraid to talk with your banker and explore the opportunity.
The move from paper checks to VPA or integrated payables may sound overwhelming, but understanding the processes of both—as well as the misconceptions—can ultimately benefit your business’s bottom line.
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