Why Businesses Should Use Credit Cards for Payments
Successful businesses look for ways to streamline operations in order to increase efficiency. Working efficiently is particularly important if the economy is slowing, and the business is trying to control costs. One potential area of improvement is invoice processing, and shifting more payments to credit cards may increase efficiency. Stampli’s accounts payable (AP) Automation tools make it easy to increase credit card payments and to speed up invoice processing.
Processing AP Using ACH and Checks
To illustrate the challenges of ACH and check payments, assume that Trailhead Bikes manufactures mountain bikes. Trailhead orders component parts and raw materials from both US and foreign suppliers. Here are some details regarding purchases:
- The business averages $2,000,000 a month in vendor payments.
- The average order size is $8,000, and Trailhead processes hundreds of vendor invoices each month.
- 90% of invoices are paid using ACH or check, and 10% are paid using a credit card
Some of Trailhead’s vendors make component parts, including brake pads and gear shifts, and Trailhead does not have the expertise to make the parts in-house. Finding vendors who make quality parts and deliver items on time is difficult, and Trailhead needs to maintain these key relationships.
The company’s invoice processing system is not completely automated, which requires more time and slows down vendor payments.
Reviewing the Current Process
Trailhead’s staff sends invoice data using email attachments, and the company’s process for coding, sending payments, and posting data into the accounting system requires manual entry. The invoice processing system is inefficient, and manual work increases the risk of error.
How goods are ordered and received
Trailhead’s Operations Manager plans bike production, and uses that information to determine purchases. The Operations Manager emails purchase orders (POs) to vendors for every purchase, and items are received at the factory. Each vendor emails an invoice, which is compared with the purchase order and the shipping receipt.
Processing payments
The Operations Manager emails the invoice, purchase order and shipping receipt to Accounting and initials the invoice to approve payment. The CEO performs a final review of the documentation before payment, and Accounting pays vendors by ACH, check, or credit card. The vendor is emailed the payment details (ACH data, check number, or credit card data), along with the invoice paid.
Trailhead receives 1% cash back for each dollar of credit card spending. Credit card usage averages $200,000 each month ($2,000,000 X 10%), generating $2,000 in cash back to the business.
The invoice processing system creates a number of problems that slow down invoice approval, payments, and the accounting process.
Challenges with the Current Process
Poor communication, along with the need for manual accounting entries, make it difficult to pay vendors on time, and to close the books at month end.
Communications are not centralized
The Operations manager, vendors, and the accounting department email attachments to process invoices. Emails can be lost, and attachments may be missing, or attached by mistake. Trailhead does not have a central location to save and review all communications, and the system requires frequent follow-up emails and phone calls.
Bank reconciliations are more complex
Trailhead processes hundreds of ACH and check payments, and each payment requires several days to complete. The time delays mean that the company must account for more reconciling items in the bank statement at month end, and the month-end closing takes more time.
For example, assume that 7 checks are outstanding on the 31st of March. The outstanding checks are reconciling items in the March bank reconciliation, and the accounting staff must confirm that each check clears in the April reconciliation.
If Trailhead grows and processes more ACH and check payments, reconciling the bank account will require even more time. As this podcast explains, businesses must work productively in order to compete in the marketplace.
In addition, physical checks may get lost, and a physical check increases fraud risk. An individual may be able to change the data on the check, and attempt to cash the check and steal the funds.
Credit card statements not integrated
Trailhead pays a small portion of invoices using credit cards, and accounting for the transactions is not fully automated. The accounting staff must download and review the monthly credit card statements, and manually post the expenses. Each month, Trailhead has credit card payments that can’t be matched with the correct invoice, and the Operations Manager has to resolve each issue. Delays in confirming credit card data increase the risk of shadow spend.
By introducing automation and increasing credit card use, Trailhead will reduce manual work and complete invoice processing sooner.
Increasing Card Payments
Shifting more invoice payments to credit cards will speed up payments, simplify the accounting process, and increase cash back rewards. Stampli’s newest platform enhancement allows users to code, approve, and pay vendor invoices with Stampli Card, in addition to ACH and Check, all directly in Stampli.
Stampli Direct Pay and Stampli Card are integrated with the most powerful AP Automation platform, and businesses maintain precise controls over credit card spend. Users can send payments to vendors safely and securely, and vendors are automatically notified when a payment is made.
Assume that Trailhead shifts 75% of its $2,000,000 in monthly vendor payments to credit cards (an increase from 10%). Here are some of the benefits when firms increase credit card payments
Improved communication
Vendors submit invoices to a designated email address, and all communications regarding an invoice can be accessed in Stampli, along with the invoice, PO, and other documentation. Stakeholders can access all of the information in one central location.
By centering communications on top of the invoice itself, AP departments collaborate and communicate better with approvers, vendors, and any stakeholder involved with purchases, allowing approvals to happen 5x faster.
Maintain strong vendor relationships
Once the payment occurs, vendors can be notified by an automated email, and vendors can access the card details in the Vendor Portal. Faster payments can improve vendor relationships, which is particularly important during times of supply chain disruptions. The Vendor Portal provides the vendor updated information on each invoice, and vendors can ask questions regarding payment status.
Simplified accounting process
When you use Stampli Card, vendor invoices are paid instantly. If you shift payments to Stampli Card, the accounting department will have fewer items to monitor in the bank reconciliation, and you can close the books faster at month end. All of the Stampli Card activity is integrated with invoice approval and payment data. You can process more credit card transactions without manually posting expenses.
Increased cash back rewards
By paying vendor bills with Stampli Card, you can pay vendors faster than ever before, and take advantage of credit card rebates and rewards. Using Stampli Card allows businesses to leverage rebates and to improve cash flow. Firms can also apply vendor credits to payments, so you can reduce cash outflows.
Trailhead can sharply increase cash back earnings by moving to credit card payments.
Stampli users can keep their existing process in place, and using Stampli Card ensures that the right individuals review and approve the purchase. Stampli’s invoice processing system reduces the risk of fraudulent transactions and duplicate payments.
Scale Your Business With Confidence
Combining the benefits of Stampli Direct Pay and Stampli Card will help you increase efficiency, control spending, and speed up payments. When you use Stampli’s AP Automation, you’re in a better position to scale your business and to process more transactions. Contact us to find out how Stampli can improve business results.
