Key Takeaways:

• An invoice review is crucial before sending the payment.
• Checks, wire transfers, credit cards, virtual card payments, and ACH payments are common vendor payment methods.
• Businesses can follow immediate, Net 15, Net 30, or Net 60 payment terms.
• Automation can speed up the entire payment process.
• Professionals should maintain a proper record for auditing and accounting purposes.

What Is a Vendor Payment?

Vendor payment, also known as ‘supplier payment,’ is a payment made by the business to suppliers or vendors for their offered goods or services. It is an essential part of accounts payable operations and ensures a strong supplier relationship.

Utilizing and maintaining a proper vendor payment management system is essential for smooth payment flow. It keeps the vendor relationship healthy and is the best way to avoid late payment penalties.

What Is Vendor Payment Automation?

Vendor payment automation is an approach to automating the payment process for suppliers. Companies can easily reduce the workload by automating the task. Automation can also enhance accuracy, cutting down the chances of error. It leads to timely payment for every invoice.

Key Steps Involved in the Vendor Payment Process

1. Dispatch of Invoice

Initially, vendors will share an invoice that outlines the goods or services offered and the payment due. You must cross-check the invoice to ensure that payments align with expectations.

2. Approval

The appropriate company personnel will approve the payment after verifying all the necessary information on all invoices. The accounts payable team is the core responsibility in this process.

3. Processing of Payment

The actual transaction follows, and it can be made using various payment options, such as bank transfer, credit card, checks, or EFTs. Vendor credit or payment vouchers are other options.

4. Confirming Payment

The vendor’s accounts receivable department will confirm that the correct money was paid. The confirmation will confirm that the payment process was completed.

Various Methods for Vendor Payment

The AP department can choose any payment method based on vendor convenience, cost, and security concerns. Here are some vendor payment methods:

1. Payment Platforms

Payment platforms provide a simple electronic payment approach. Stripe and PayPal offer secure and quick transactions, and eCommerce businesses usually utilize such platforms.

2. Checks

A paper-based payment method is a good option for local transactions. Business professionals can maintain a good transaction record using checks, but it takes time. Checks are the most preferred payment method in B2B businesses.

3. Electronic Funds Transfer (EFT)

EFT refers to electronic payments that are most suitable for recurring payments. The transaction is quick and convenient because the payment is directly credited to the vendor’s account from the company’s bank account, which saves time.

4. Credit Cards

Credit cards are another option for quick and convenient payment. Professionals who use this option for vendor payment processing also receive rewards and cashback offers.

5. Wire Transfer or Bank Wires

Wire transfer, also known as bank wire, is a common payment option for vendors abroad. It is processed through the SWIFT network and takes 3 to 5 business days.

Challenges of the Vendor Payment Process

Professionals can face numerous challenges when it comes to paying vendors. Some of the challenges are listed below:

1. Lack of Clarity

Sometimes, the invoice stage lacks clarity. This compels professionals to make extra efforts to detect the invoice status, which is time-consuming. The AP team’s manual work also adds pressure on the supplier’s AR team, which can also bitter the business vendor relationship.

2. Payment Errors

Payment errors refer to mistakes during the payment process. These could be the wrong amount of payment (low or high) or double payment when making payments to suppliers. The best solution is to double-check the payment before completing it.

3. Unsecured Communication

Buyers and suppliers have many methods available to exchange information, such as email, call, or any other standard mail. However, issues arise when vendors, buyers, and suppliers use multiple methods without security. Additionally, a systematic approach to communication should be taken to maintain a proper record.

4. Missing Invoice

A missing invoice is the major cause of payment delay. It is common in large corporations that have a manual process. However, with an automation concept, this issue can be prevented.

5. Manual Data Entries

Manual data entries are a major cause of several errors that can be caused by wrong entries or missing data. As a result, they delay the process and negatively impact the overall process.

Why Are Vendor Payments Important?

Vendor payments play a crucial role in smooth business operations. The following are the major reasons:

Managing and Improving Cash Flow

An organized vendor payment is always helpful in maintaining a healthy cash flow, which further strengthens the business’s financial confidence.

Avoiding Penalties & Late Fees

When you pay your vendor promptly, the chances of late fees and penalties are very low. This is because on-time vendor payments prevent payment delays.

Strengthening Vendor Relationships

On-time payment is a key to strong vendor relationships. This automatically impacts the business as vendors supply products and services on time. Thus, businesses never suffer a shortage of supply and can run the business smoothly.

How to Improve the Vendor Payment Process?

The vendor payment process needs to be streamlined for better vendor relationships and better cash flow with active business. But the question is, what are ways to refine this process? So here are the points you can follow:

1. Choose Automation Power

Automation can revolutionize the payment process and positively impact the entire process. It makes the process quicker and simpler. Additionally, it leads to uninterrupted processes and keeps the operation running smoothly. This ensures that bills are paid on time while avoiding late payment fees and other penalties. Moreover, automation gives full transparency. Additionally, it refines vendor relationships.

2. Assess the Vendor Relationship

Always be open to asking the vendor some basic questions whenever there is a fresh conversation. Following are some questions you can ask:

• How many years have they been in the business?
• What is their staff size?
• What is the scenario of their supply chain?

When you get your vendor on board, check regularly to see how things are going. This helps you maintain a healthy vendor relationship.

3. Fraud Protection

Scammers always try to obtain payment information or stroll through payments. This can disturb your whole payment operation. The best solution is to utilize security measures and technology to prevent fraud.

4. Showcase the Payment Terms

When dealing with your vendor and making the payment, you must be clear about the date and payment method.

There should be clarity over whether the payment is Net 15 or Net 30, whether it is per item, per hour, or monthly. You must have clear words with your vendor regarding vendor payment methods like ACH, credit card, check, or virtual card.

5. Centralize Payment Processing

A centralized payment process helps systemize all crucial information in one place. This eases the team’s work when finding any record or information. Additionally, it saves the team time because they only need to access the centralized platform instead of checking each record from different sources. Thus, it streamlines the vendor payment process.

6. Regular Auditing

Regular audits can prevent irregularities and identify errors in the early stages. Additionally, they present areas that need improvement. Thus, professionals get the right insight into the data with regular auditing.

7. Choose ACH to Pay the Vendor

An easy and trackable payment solution is essential, and fortunately, ACH commits to this. With ACH, both vendors and the accounting team can gain insight into details, which is helpful for both parties.

The ACH process is fast compared to traditional mail, taking about 3 to 5 business days. Its affordable cost (less than $1) is another icing on the cake.

Let’s Improve Your Vendor Payment Process with Moon Invoice

Moon Invoice streamlines the invoicing process. It helps you create a digital invoice and send it to the client. Additionally, the platform offers the best solution for recurring payments and payment reminders. We offer an automation concept for the supplier payment process that commits to speed and accuracy while consistently paying vendors.

Here are the key features of Moon Invoice:

• 20+ payment-integrated methods
• Offline data sync
• 15+ business reports
• Project time tracking
• Expense management
• Generate digital estimates, invoices, and receipts
• Multi-currency support
• Data security
• Activity log to check every performed action

Final Remark

Business professionals should make timely payments to their vendors. A good and effective vendor payment process is key to a good vendor relationship, which is essential for your business.

So, you must adopt the right payment automation concept and accounting software to speed up this process and ensure accuracy. No matter what payment method you choose to pay your vendor, it should always be on time.

Frequently Asked Questions