Time is the most significant resource for new-age, digital-first companies, and speed is the best strategy. Resorting to a manual process for vendor payments makes you compromise both.
Let's do some quick calculations.
A single vendor payment includes dealing with tax compliance, currency exchange rates, risk and fraud monitoring, payment terms, approvals, tracking, and recording.
Think how much time is lost when you deal with multiple vendor payments every month, and that too, manually.
The studies have found the answer for you.
An average employee spends 3 hours per week in manual data entry, toggling between spreadsheets, customer relationship management (CRM), and docs. Repetitive tasks, which can be automated, take away more than 21 days a year. Besides manual work, tasks like meetings, checking emails, organising & searching files, etc., reduce productivity by 40%. On the other hand, automation is fetching positive results and synergising growth within organisations that have embraced it.
Image source: Workflow Here are the key insights from recent surveys.
90% of office workers said automation helped to eliminate errors and make decisions faster. Around 75% of workers reported automation boosted their productivity, cross-team collaboration, and job satisfaction. 80% of employees strengthened customer relationships and took on challenging projects through automation. One of the areas where automation can be rewarding is the vendor payment process . Investing in automated vendor payment systems yields returns in terms of optimised productivity, resources, and speed.
What are Vendor Payments ? A vendor payment can be defined as a series of steps for paying vendors for the goods, services, or solutions they provide to your startup. Vendor payments fall under the accounts payable (AP) category.
Standard Methods for Vendor Payments There are multiple ways to send payments to suppliers. The common ones are:
Wire transfers ACH transfers Cards payments Online payment gateways - Paypal, Stripe, etc. checks/e-checks What is the Process for Manual Vendor Payment? Technological advancements have shifted the accounts payables department from papers to spreadsheets. Though the dependency on papers and physical ledgers for paying vendors is reduced, the process still demands manual participation to a large extent.
The process for manual vendor payments proceeds in the following manner:
Receiving invoices from the vendors Verifying the documents and related information manually Juggling with spreadsheets to enter data Calculating Tax Deducted at Source (TDS) calculation, tax deductions, and other compliances Making and tracking a payment Juggling with the spreadsheet again after the payment Filing tax refunds When done manually, each step of vendor payment is filled with challenges, making the process time-consuming, demanding, and tedious. These problems pave the way for uninvited troubles. Resolving them costs time and money. It also takes away a significant fraction of your team's bandwidth, which results in poor productivity and slow growth.
Let's zoom in on each of the challenges.
Challenges in the Manual Vendor Payment Process The results of the 2021 survey on accounts payable challenges shed light on an important insight. Manual data entry is the most frequent of the multiple challenges the AP department has to deal with.
Image source: Levvel Here's a rundown of other challenges that come as unwanted surprises in the process of supplier payments.
1. Collecting Vendor Information Your company's alliance with the vendor begins with onboarding. Collecting correct information from vendors during this process is critical for payments to be hassle-free.
The information needed from suppliers comprises:
Legal Name Address Contact details Tax Identification Number GSTIN number Insurance and licences Bank details These details vary from vendor to vendor. If any details are changed, the modifications must be made manually. As the vendor list keeps increasing, managing it becomes more challenging.
2. Tax Compliance Complexities After you've onboarded vendors, your company is ready for regular payment cycles. With each invoice comes a responsibility to calculate taxes. These taxes must be accurate and compliant to avoid problems later.
TDS and GST are more challenging because they're different for different vendors. These things make manual calculations hectic and prone to errors. Such erroneous computations result in incorrect tax filings, leading to fines. Hence, a single mistake can significantly impact the company's overall cash flow.
3. High Error Rate Errors aren't confined to tax calculations. They can occur at several places during the process. The accounts payable best practices resorts to a three-way matching procedure to ensure the correct processing of invoices. Three-way matching includes checking three items before making the payment —
Purchase order Goods receipt note Vendor's invoice While this technique lessens the chances of errors, the time consumed is still significant. The odds are improved but aren't eliminated.
Moreover, 16% of the surveyed AP staff mentioned duplicate invoices as a top challenge. It means there are instances when an invoice is paid before all the listed goods are received. Sometimes, the invoice is paid twice, while in some cases, it goes missing in the poorly structured crowd of spreadsheets. Such mistakes can be resolved but at the cost of time and efficiency.
4. High Fraud Risk A 2022 global fraud study by the Association of Global Fraud Examiners (ACFE) analysed 2000+ cases, 416 of which belong to the fraudulent billing category. The median losses from this category alone correspond to $100000.
Image source: ACFE 2022 report This study proves businesses are no strangers to payment-related frauds.
During supplier payments , these fraudulent activities can happen in multiple forms, the prominent ones being.
Fake vendor accounts: A fraudster creates a fake vendor account and directs payments to it. Duplicate payments: A scammer manipulates payments of a real vendor account and directs payment to a second duplicate account.Check forgery: Payments are manipulated by making a new check or altering the initial check, which directs payments to an impostor's account.Cyber fraud: Unsecured online payment modes are used, and hackers direct the digital payments to their accountOverbilling: The vendor quotes a higher price in the invoice or includes a bill for goods not delivered.Bribery: Bribery involves the employee receiving monetary compensation from the vendor in exchange for extra sales and benefits or even breaching company data.Image source: ACFE 2022 report 5. Slow-moving Payments 94% of the manual invoices are paid after 30-60 days. That's a significant time.The two primary reasons behind over-long vendor payment cycles are —
Incorrect invoicing processes : 61% of the invoices get paid late because of incorrect details, according to a study by Amalto. Moreover, another study finds a similar percentage of invoices have compliance-related issues.Delayed approvals: According to Levvel Research , 50% of companies wait between 10 and 25 days for invoice approval. Invoices keep swinging across the AP department. Lack of centralisation makes the process lengthy.Consequences of delayed vendor payments are stained vendor relationships, late payment fees, and disturbed cash flows.
6. Lack of Transparency By the time your invoice seeks approval across the department, a vendor waiting for payment experiences inconvenience. Your vendor has no idea about the status of the invoice. Repeated queries keep flooding in via emails and phone.
Being transparent also means being clear about the payment process and giving timely updates in case of unexpected issues. The trust weakens otherwise.
Had there been a way for vendors to check the pending invoice's status without security concerns, a company could save time in answering email queries. The trust strengthens, too.
7. Inefficient Tracking After the payment is made, tracking is crucial. It helps finance leaders project accurate budgets and cash flows. Every step should be documented from the date the invoice was issued to the date it got approved, paid, and reflected in the vendor's bank account.
With manual tracking, the entire process is complicated. It becomes more complex when those invoice track records need to be shared with vendors or across teams.
The manual process for supplier payments has massive room for mishaps, most of which can be expensive. All these challenges altogether make manual vendor payments an inefficient process.
Spreadsheets are complex. They become even more complicated as your vendor list increases. The sheets can hardly perform if you consider aspects like security, scheduling, and tracking. There's a need for a solution that streamlines not only a part but also the end-to-end process of paying vendors.
Vendor payment automation is a solution your AP department needs. Then, the entire B2B payment process becomes more accessible, faster, and better. It's time to delve deeper and talk about how automation removes the roadblocks of manual payment.
Mysa vs Manual Vendor Payment: Cost, Time, and Accuracy Manual vendor payments drain time, increase error rates, and expose your startup to compliance and fraud risks. Mysa automates invoice capture, approvals, payments, and reconciliation—so finance teams can move faster with audit-ready accuracy.
Aspect
Manual Vendor Payment
Mysa (Automated Vendor Payment)
Cost
- Higher operational cost due to manual effort
- Lower processing cost per invoice
Time
- 3+ hours/week per employee on manual entry
- Real-time processing and faster approvals
Accuracy
- High error rate in data entry and tax filing
- Auto-scans invoices with near 100% accuracy
What is Vendor Payment Automation? Vendor payment automation refers to the process of automating supplier payments by businesses. From approval to remittance, automation helps to establishes seamless invoice approval workflows for every step of the vendor payment process. It restores (and enhances) what manual process robs of — time, money, productivity, and growth.
What is the Process for Automated Vendor Payment? Supplier payments are less overwhelming and more efficient once you automate the process.
Here's how it goes:
Capturing of invoice details by the automated system Seamless approval by stakeholders with centralised access Initiation of payment in line with the selected mode of payment and agreed terms Shared visibility into the status of each transaction Tracking on autopilot Read our latest article on Invoice processing mistakes and best practices to avoid them.
How to Automate Vendor Payment Process for Startups: A 5-Step Guide As per the IOFM 2021 report , only 27% of the finance departments have enabled automated workflows. This conveys that many are yet to avail themselves of the benefits of automation in startup accounting processes
Here's a simple guide to help you get started with automated supplier payments:
Step 1: Choose the Right Account payables Automation Software Step 2: Choose Your Banking Partner for Current Account Step 3: Become a User Step 4: Input Vendor Details Step 5: Create and Automate Workflows Step 1: Choose the Right Account payables Automation Software Some ideal features of the right automation software are:
A neat, user-friendly interface Powerful data security Flexibility for payment options Integrations with other software Ability to set up recurring transactions, reminders, and auto-scanning of invoices If you're looking for an effective solution that does more than AP automation , explore Mysa . This AI-powered platform provides a consolidated solution for your accounting, banking, and taxation needs.
Step 2: Choose Your Banking Partner for Current Account The decision to choose a reliable banking partner involves five key factors:
Your location Bank's regulatory concerns Range of products and services offered by the bank Cost and additional charges Working cadence and contracting process of the bank You can read more about the top banks for current accounts for startups in India for new-age companies.
Step 3: Become a User Once you find the software best suited to your needs, it's time to complete the signup process and become a registered user. This will require you to fill in details regarding your company, verify certain documents, and complete the onboarding process.
Step 4: Input Vendor Details Fetch your vendors' information to the software. Once the software stores information, tasks like processing GST-compliant invoices, making accurate tax deductions, and modifying the vendors' details occur on autopilot.
Step 5: Create and Automate Workflows It's time to automate the payment process and optimise productivity and resources. You can create multiple workflows within clicks, some of which are:
Recurring payments Seamless cross-team approvals Tracking payments Auto-reminders and responses in case of delay and queries Monitoring frauds and risks That's it. Upload the invoice into the system and experience seamless vendor payments in action.
Streamline Vendor Payments with Mysa Here are the benefits of using Mysa's intelligent software for streamlined vendor payments:
Faster onboarding Well-coordinated communication Lightning-fast approvals, long-lasting relationships 2. Cost Saving Prevent losses by lowering susceptibility to fraud Avoid late payment penalties and avail of early-payment discounts Free up your team's time and bandwidth to focus on priority tasks 3. Resource Optimisation Scale faster with greater speed and efficiency Achieve 20% more productivity Maximize growth 4. Error-free data handling Accurate tax calculations Prevents fines and hassles No more missing invoices and double payments 5. Risk-resistant Workflows Secured workflows for payment authorisation and initiation Centralised access for more organised and safer payment cycles Complete visibility and comprehensive tracking to tackle disputes 6. Improved Finances Real-time cash flow breakdown for informed financial decisions More accurate reporting and forecasting through coherent cash flow dashboards . A holistic way to evaluate, enhance, and ensure smooth operations across accounting, compliance, and banking segments. FAQs 1. What is Vendor Payment Management? Vendor payment management refers to the processes and systems used by a business to manage and execute payments to its vendors or suppliers. It involves tracking invoices, ensuring payments are made on time, and managing the overall relationship with vendors to ensure smooth and efficient financial transactions.
2. What are Vendor Payment Management Solutions? Vendor payment management solutions are tools and software designed to automate and streamline the payment process to vendors. These solutions often include features such as:
Invoice processing and approval workflows Automated payment scheduling and execution Vendor communication and management portals Integration with accounting and ERP systems Reporting and analytics to track payment status and cash flow 3. What are the Steps in the Vendor Payment Process? The typical steps in the vendor payment process include:
Vendor Onboarding Collect vendor details and banking information. Verify vendor credentials and compliance. Purchase Order (PO) Creation Generate and send a purchase order to the vendor. Invoice Receipt Receive the invoice from the vendor. Verify that the invoice matches the PO and goods/services received. Invoice Approval Route the invoice through an approval workflow. Ensure all necessary approvals are obtained. Payment Scheduling Schedule the payment based on agreed terms and due dates. Payment Execution Process the payment through the chosen payment method (e.g., ACH, wire transfer, check). Payment Confirmation Confirm that the payment has been received by the vendor. Record Keeping Update accounting records and reconcile payments. 4. How Do I Keep Track of Vendor Payments? To keep track of vendor payments, businesses can use the following methods:
Accounting Software: Use accounting software to record and track all transactions.Vendor Portals: Utilize vendor management portals where vendors can see their payment status.Payment Schedules: Maintain a payment schedule or calendar to ensure timely payments.Reports and Dashboards: Generate regular reports and use dashboards to monitor payment status.Communication: Maintain clear communication with vendors regarding payment status and any issues.5. What is Vendor Reconciliation? Vendor reconciliation is the process of comparing the vendor’s account statements with the company’s internal records to ensure that all transactions are accurately recorded. This involves verifying invoices, payments, and credit notes to identify and resolve any discrepancies.
6. How are Invoices Managed in the Vendor Payment Process? Invoices are managed through the following steps in the vendor payment process:
Receipt and Recording: Invoices are received from vendors and recorded in the accounting system. Verification: Invoices are verified for accuracy, matching them with POs and delivery receipts. Approval: Invoices are routed through an approval workflow to obtain necessary authorizations. Payment Scheduling: Approved invoices are scheduled for payment based on due dates and cash flow. Payment Execution: Payments are processed and executed using the chosen payment method. Record Keeping: Paid invoices are marked as paid, and records are updated accordingly. 7. How to Manage Bulk Vendor Payments? To manage bulk vendor payments, businesses can:
Batch Processing: Use accounting software or payment platforms that support batch processing to handle multiple payments simultaneously.Automation: Implement automated payment systems to streamline the process and reduce manual effort.Vendor Portals: Utilize vendor portals where vendors can submit invoices and track payment status.Electronic Payments: Prefer electronic payment methods like ACH or wire transfers to handle bulk payments efficiently.Reconciliation Tools: Use reconciliation tools to match payments with invoices automatically.
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