In an age of widespread e-commerce, it may come as a surprise to discover businesses frequently pay invoices with paper checks. Even a retail business that does a large proportion of its customer transactions in cash should have every reason to pay its suppliers electronically, since those suppliers are generally far away and a quick, secure method of transaction is always desirable.
Yet this state of affairs persists. Perhaps some businesses and their Accounts Payable departments have simply not questioned whether or not a change in method is worth the effort; others may have more concerns about the security of online payments than they do with the paper method they already know. However, even if those concerns were warranted in the past, it’s worth looking at the options available now for electronic invoicing and payment.
- ACH (automated clearing house): ACH payments have existed for several years as not just an alternative to paper checks, but also basic credit card payments. ACH transactions are more financially efficient; in most cases the processing cost is less than with a credit card, and money is either received or spent (depending on which side of the transaction you’re on) within the day as opposed to having cash locked up for the time it takes to receive and deposit a paper check. ACH fees are only a problem for small businesses without the volume to receive a better rate than they would for credit card transactions. For using ACH to make payments to suppliers, the system should nearly always be both more secure and a better use of resources.
- Wire Transfer: Some people don’t consider wire transfers as something worth using, because they only know about the traditional consumer-to-consumer transfer. However, bank-to-bank wire transfers exist, and for businesses they are arguably the safest method of payment to a supplier. As long as you know the banks involved and the fees they’ll collect for the transfer, you’re able to move money without concern of credit card numbers being stolen or hacked, or checks being lost. Because the account holders must be known to the bank, fraudulent payments are also highly unlikely. Wire transfers can be more expensive, depending on the size of the invoice being paid, but in some cases the security is worth it.
- Virtual Card: VCard payments are known for serving as an extra-secure method of credit card payment. Where a normal card payment attaches the card number, a virtual card is set up (often by banks) to work with certain types of major credit card (Visa and MasterCard, for example, providing a single use number for each individual payment. When you use this type of payment, rather than paying with the same card number and enduring the inherent risks, however small, of doing so, you receive a new number used for that transaction. It connects your payment to the actual card through the virtual card issuer, so that if someone does steal your card number, they wind up with nothing but the virtual card number, which is useless after that transaction is complete.
In addition to these improved methods of payment, electronic payments also make it easier for Accounts Payable departments to take advantage of discounts offered by suppliers. If a supplier offers an early pay discount, where (for example) a small percentage of the invoice is taken off if the bill is paid earlier through an electronic payment method, both companies can benefit. The payer a discounted rate and the payee receives payment as soon as possible. Without an electronic payment method, this concept would be extremely difficult; with it we have another option for buyers and suppliers to find a payment relationship that works best for them.
With the ever-increasing security of electronic payments and the wealth of reasonable options, there’s no longer any reason for businesses to do pay their invoices in paper checks. Now is the time for your business to implement a payments strategy that includes electronic payment solutions.