The Rising Popularity of Electronic Vendor Payments

by Ashley Poynter

Content Manager

What You Don’t Know About the Rising Popularity of Electronic Vendor Payments

Are you still paying vendors with paper checks? Things have changed a lot in vendor management over the past decade and even over the last few years…. And maybe even the past few months! Paper checks now present more problems than solutions – and they’re very prone to fraud.

If your organization still relies on paper checks to pay vendors, this is us giving you notice – notice that it’s time to switch to electronic vendor payments. I am sure you already want to do this, Don’t worry; we’ll give you a primer to help explain why in great detail.

If your organization prioritizes electronic vendor payments, pat yourself on the back but recognize there’s still more work to be done. Ideally, you are trying to move as many vendors as possible to virtual card payments. Why? Because they’re simple, secure, and earn you revenue.

And if you’re really sophisticated, you’re investigating ways to make payments even easier (and more strategic!) for you and your vendors by offering “early pay” options.

There’s a lot to cover, so let’s dig in.

Why Electronic Vendor Payments Beat Checks Every Time

Exploring Different Types of Electronic Vendor Payments

—Our favorite electronic vendor payments: virtual card payments

—Next best electronic vendor payments: ACH

—Paying Vendors Early

Benefits of Electronic Vendor Payments

#1. Cut costs

#2. Secure payments

#3. Ease, speed, and saved resources

#4. Complete visibility into electronic payment process

Get Ready for Vendor Management Appreciation Day 2024

Want Help Aligning Teams On Electronic Vendor Payments?

Interested in Regular Tips On Electronic Vendor Payments?

Want Personalized Guidance On Electronic Vendor Payments?

Why Electronic Vendor Payments Beat Checks Every Time

The contrast between electronic payments and traditional checks is stark. Checks do not fit the world in which businesses operate today. Electronic payments, on the other hand, streamline the transaction process, offering speed, security, and simplicity that checks simply cannot match. But what exactly makes electronic payments superior?

Cost

In short, paper checks are expensive. Think about printing, postage, and handling expenses. Then, add in the costs associated with the time it takes to manually write, mail, and reconcile checks. Snow Rutkowske, a Huron consultant focused on procure to pay, breaks it down pretty well below:

On the other hand, ACH and virtual card payments digitize the process and make it simple, significantly reducing, if not eliminating, most of those costs. Automating payments eliminates the need for physical checks and postage and reduces the labor involved in payment processing.

Security

Paper checks add unnecessary security vulnerabilities into the mix. You have the risk of theft and forgery as well as the vulnerabilities of having account information printed on each check.

In contrast, electronic vendor payments follow strict banking protocols and use encryption to secure payments, mitigating most risks. Virtual cards enhance security even further by generating unique card numbers for each transaction, shielding the business’s actual banking details from potential exposure.

Speed and convenience

Let’s not forget about the nice-to-haves like speed and convenience. Simply put, electronic vendor payments move money faster. They put money in your vendor’s hands faster, and they improve cash flow management on both sides of the transaction.

Virtual cards can add even more control over payments with customized controls on amounts and timing. As businesses embrace digital transformation and aim to optimize financial operations, these kinds of features are extremely valuable. Your vendor wants their money fast, while you (likely) want to hold your money as long as possible. Virtual cards solve for both.

Organizations that want to stay competitive have to be able to adapt to rapidly changing market dynamics. Electronic vendor payments are not just a convenient option but a strategic move for organizations that want an edge.

Exploring Different Types of Electronic Vendor Payments

Electronic vendor payments encompass a few different ways to pay, including ACH, virtual cards, and early pay options. Each has it’s own set of considerations and benefits, but they all offer reliable, cost-effective, secure ways to transfer funds between accounts.

Our favorite electronic vendor payments: virtual card payments

Virtual cards are a fan favorite (and we understand why: rebate revenue!) ) when it comes to electronic vendor payments. The reason is that they simplify reconciliation, reduce manual labor, improve security, and have the potential to earn rebates.

When an organization opts to pay a vendor via a virtual card, the process begins with the generation of a unique card number, expiration date, and security code for a specific transaction amount. This number is then sent to the vendor, who processes the virtual card payment much like any other credit card transaction. Once the payment is processed, the virtual card number becomes invalid, adding an extra layer of security against potential fraud.

Problems virtual card payments solve

Virtual card payments are becoming increasingly popular payment options because of the problems they solve:

Reduce manual processes and human error: Digital payments happen quickly and automatically based on information collected during vendor onboarding and/or updated through an approved workflow.
Better control and security: virtual cards are single- or limited use, meaning a unique virtual card number is generated, and a total amount or expiration date is set. The card can no longer be used after the expiration date, or once the amount has been reached. This reduces the risk of unauthorized charges and fraud. In some cases, you can set additional controls to maximize security.
Easy reconciliation: Virtual cards are tied to unique identifiers, making it very simple to connect invoices and the associated payments. Since virtual cards are digital, they can be tracked in real-time for easier reporting, unlike paper checks.
Rebates: The way and the timing of payments should be strategic, and virtual cards help organizations do this by turning electronic vendor payments into a revenue center. Many virtual card providers offer rebates that can add substantial savings for your organization – savings that can be reinvested into the business to drive growth. Hear Sharon Loosman and Megan Catt from North Carolina State University talk about how they turned their operation into a profit center below:

Virtual cards are great for vendors, too! Vendors get paid faster and don’t have to wait on paper checks that can get lost (or stolen!) in the mail. Ultimately, virtual cards are a win-win for both sides of the equation. Organizations can guard against fraud while achieving better operational efficiency – and keeping vendors happy. One caveat: payers must meet their payment terms on virtual cards if they want to keep vendors happily accepting this means of payment.

Next best electronic vendor payments: ACH

Right on the heels of virtual card payments, we’ve got ACH payments—another favorite in the electronic payment lineup for businesses looking to pay their vendors efficiently and securely. Think of ACH as the dependable workhorse of direct bank transfers. It’s straightforward, it’s reliable, and it’s got some perks that both businesses and their vendors are going to love.

Understanding ACH Payments

ACH, or Automated Clearing House payments, is like the digital expressway for moving money directly between bank accounts. This setup is perfect for when you need to pay someone (like a vendor) or get paid without the hassle of handling physical checks or cash. It’s a system that’s been around, doing its thing quietly but effectively—making it a solid choice for businesses of all sizes.

Why organizations like ACH

Businesses like ACH payments for a few reasons. For starters, ACH payments are cheaper than dealing with virtual card fees, especially when you’re sending money regularly or in large amounts. They also cut down on a lot of the manual work, which means less time spent on paperwork and more time doing…well, business stuff.

One area where organizations must be careful is with the various payment fraud scams that love to target ACH. While the risks associated with paper checks disappear, you must remain vigilant about social engineering attacks that aim to manipulate you into sending money to the wrong person. Whether it’s CEO fraud or vendor impersonation fraud, bad actors will try to get you to redirect money where it doesn’t belong (sidebar: PaymentWorks offers indemnification for this very reason. Our “okay to pay” status, which triggers fraud indemnification, means you can rest easy knowing your payment is backed by a warranty that protects your organization from fraud losses.).

All things considered, ACH payments are reasonably affordable, secure, and snappy (especially with the right vendor onboarding platform). You get this peace of mind knowing exactly when your money is going to land, which is a big win for planning your cash flow.

Vendors like ACH, too

It’s not just businesses reaping the benefits—vendors are all in on ACH, too. The biggest win for them is getting their hands on the money faster. Vendors know they can expect funds to transfer in a couple of days, and there’s no waiting game as there would be with paper checks. It also removes the administrative burden of signing and depositing paper checks. And since ACH payments zip directly from one bank account to another, there’s none of the risk that comes with checks potentially getting lost or ending up in the wrong hands.

In sum, ACH represents a good blend of cost-effective, efficient, and secure payments. Many organizations rely on ACH payments because they are a reliable, easy way to send payments.

Paying Vendors Early

Depending on the vendor management platform you use and how you process vendor payments, you may have the option to pay vendors before their invoice due dates. Known as supply chain finance (SCF), this option can accelerate payments for vendors who are enrolled in this type of program.

There are a few things to know about SCF: 1) there’s generally no control over how fast payments happen, which makes value for the vendor questionable, and 2) early payments are usually done by third parties that don’t otherwise work in conjunction with the payer.

However, if you can find a vendor onboarding platform that offers an early pay option, you may be able to tap into all the benefits and know your vendors are benefitting, too. PaymentWorks, for example, pays upon invoice approval with a sliding rate scale. As a result, organizations have an easier time getting vendors to opt in – and stay opted in – to an electronic payment time.

Subsequently, your vendors have a good experience and can receive payment more quickly than their due date. Check to see if your vendor onboarding platform has this option. In most cases, the platform provider pays the vendor early, but you don’t need to pay the invoice until the term expires.

Like virtual cards, payers get the benefit of holding onto their cash until the invoice is actually due, while vendors still receive payments early. (Quick pitch: the PaymentWorks platform offers PaymentWorks EarlyPay, with a sliding scale based on how quickly a payment is accelerated. Your vendors will only pay a fee if they receive value. End of pitch.)

This way, the vendor can access the financing they might not otherwise have, and you can earn a rebate based on vendor-discounted payments. See, there’s an upside for your organization, too!

Benefits of Electronic Vendor Payments

Switching to electronic payments for handling vendor transactions isn’t just a trend; it’s a smart business move. Ditching the old-school paper checks for sleek digital payments is changing the game for businesses everywhere. Let’s unpack why making the leap to electronic payments could be one of the best decisions your company makes.

#1. Cut costs

Let’s face it: sticking with paper checks is like throwing money out the window. Between the cost of printing, mailing, and the time it takes for someone to handle all that paper, it adds up—fast. Listen to our own Grace Mabie talk about why the cost of sending checks is just not worth it:

And checks take days, sometimes weeks, to clear. Electronic payments, by contrast, offer a leaner, more cost-effective solution. They’re digital, so they don’t require envelopes or postage. They can reduce processing fees and speed up the payment cycle. The result? Your organization can achieve considerable savings on every transaction and optimize your accounts payable operations.

#2. Secure payments

When it comes to security, electronic vendor payments are leagues ahead of their paper counterparts. They use advanced technologies such as encryption, SSL, and payment tokenization, ePayment methods aka robust security measures that keep payments safe from fraud and other breaches. That said, that does not mean they are 100% secure.

Social engineering fraudsters are constantly perfecting their methods to trick people into giving up sensitive information or doing things they’re not supposed to do. Even with ACH payments, this type of fraud is a risk. This is where locking down vendor onboarding and change management processes makes a world of difference. Those are the things that keep the bad guys at bay and enable you to make secure payments without losing sleep at night.

#3. Ease, speed, and saved resources

With electronic payments, the waiting game is over. No more banking on the postal service to deliver your payments on time. These digital transactions happen in real- or near-real time, allowing for quicker cash flow management and happier vendors.

Embracing electronic payments means you and your accounts payable team have more operational flexibility and responsiveness. Automating payments frees up valuable time that allows your team to focus on strategic operations instead of getting bogged down with manual, repetitive tasks.

#4. Complete visibility into the electronic payment process

Electronic vendor payments pull back the curtain, offering a clear view of the entire payment process. Your organization can track every step of the transaction, giving you greater control over cash flow and making it easier to detect and address any suspicious activities.

Electronic vendor payments are a strategic move towards more efficient, secure, and cost-effective financial operations. Taking a digital approach to vendor payments is a step toward more strategic payments and, ultimately, growth.

Get Ready For Vendor Management Appreciation 2024

Know what else is pretty popular? Vendor Management Appreciation Day (VMAD)! And the party continues all year long — join us!

Why? Because there’s no expiration date on honoring one of the most important, under-recognized roles across industries: vendor management.

VMAD is a brand-new holiday geared toward unifying vendor management professionals and celebrating innovation in the field.

We’ve released gifts each month to help you supercharge your vendor management efforts. We’re also planning some awesome events so everyone can connect and celebrate the important, strategic role of vendor management.

Learn more here, and grab some free vendor management goodies.