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Opinion: 3 questions every business should ask about payables

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Springfield is listed as one of the best cities to start a business, according to a 2018 report by WalletHub. And while launching a new business or startup is exciting, getting a business to turn a profit and run efficiently is no easy task.

Fortunately, there are aspects of business management where opportunities are ripe to save money and reduce risk. While not always top-of-mind for many small businesses and startups, your payables and card operations are a good place to start optimizing operations.

For many businesses, an automated payables system can streamline your internal process and consolidate expenditures into a single file. Automated payables can accommodate payments from automated clearing houses, wire transfers and virtual cards without requiring changes to existing accounts payable processes.

A streamlined payables system could be very advantageous for a business, particularly one that’s just starting out. However, payables systems are complex, and there are a lot of components involved with getting a program to work for your business.

Here are three questions to ask before determining which payables solution is best for a growing business.

1. What is payable automation, and why should my businesses implement it?

Payable automation is another way for a company to pay a vendor’s invoice. A payables strategy can flag vendors in the company’s accounting software that are set up to receive card payments and will generate a payment file when invoices are sent to be paid.

There is a tremendous amount of soft costs that go into running vendor payments each week, but a payment file can help reduce these costs. First, the file can offer streamlined information, including vendor name, total dollar amount to be paid and invoice reference numbers. Next, the file goes to a processor, such as Visa, to have emails sent automatically to vendors with instructions for them about how to receive their payments. Every day, the company will receive an email to inform them which vendors have accepted payments.

Payable automation saves money and is more efficient for companies. Instead of waiting for vendors to receive payments on a check schedule and fund availability of a financial institution, the process is in-house and therefore streamlined. In addition, the automation saves on check stock cost, reduces the risk of fraud attempts and cuts down on other fraud prevention service fees.

2. What are ghost cards, and how can my business benefit from using them?

A ghost card is essentially a virtual credit card. Users have a card number, expiration date and credit verification value code they can use to make purchases online, but a physical plastic card is never issued.

Ghost cards are managed just like traditional cards but with some extra benefits. Typically, they have a larger credit limit as fraud risk is drastically decreased, because there’s no plastic card being used in public.

Ghost cards usually are not titled in a specific person’s name, but rather a department’s name or generic name to easily distinguish how the card is being used. For example, a company could have a human resources card or an accounts payable card.

Ghost cards are a convenient way to have recurring payments like phone, internet or janitorial services charged monthly to decrease check run time and accounts payable processing.

Another way to use a ghost card effectively is for one-time payments to vendors. This will eliminate data entry time for the vendors that are not used on a regular basis, in turn saving the company time and resources. 

3. Is it beneficial to pay by card?

There are several upsides to a business paying a vendor by card, especially for small businesses and startups. One of the most significant benefits is that business owners can take advantage of a cash float up to 55 days, which they don’t get when they pay by check or ACH. When a card is used, vendors still receive their funds immediately, but the money doesn’t come out of the business’ account until payment is due. This allows the business to keep more funds in the bank, where the money can earn interest or help the business pay off a loan.

Companies always should be looking for ways to make processes less costly and more efficient. In addition, companies can take advantage of incentives, such as rebate programs and discounted vendor pricing, and also can receive detailed reporting on payment and remittance.

If you’re running a small business or launching a startup, consider talking with a local banker about how best to manage your payables. Setting up an efficient payable system can go a long way in helping make your company profitable and sustainable.

Justin Butler, a senior vice president in commercial banking at UMB Bank, can be reached at justin.butler@umb.com.

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