How To Reduce Operating Costs From Inefficient Payment Handling

Rising interest rates, volatile credit markets and an uncertain global economic outlook have ratcheted up the pressure on company management teams to control costs. And it’s no secret that stubbornly high inflation continues to push up business’ operating expenses.

This is a big reason there has been a wave of workforce reductions at big companies across a broad swath of industries in recent months. And why efficiency is increasingly taking priority as many businesses grapple with a budgetary hangover after having driven up spending in the years before borrowing costs began soaring.

Some 52% of CEOs say they have already begun cutting operating costs, according to a survey by PwC last fall. Sometimes the best way to cut costs beyond the short term is to invest in ways to make your business more efficient, and there are few better places to start than in the accounts payable and accounts receivable departments.

AP and AR operations are often ripe for optimization. It’s not unusual for back office staff to spend 40% of their workday on “low value-added activities,” according to PwC.

Inefficient payment handling, whether it’s in the context of B2B or B2C tasks, can cost companies sales, delay payments, undercut their ability to manage cash flow and lead to processing errors, among other costly outcomes.

And for payment processing to be efficient, it must be automated. To achieve this, most companies turn to some form of automated payment solution. More than 75% of CEOs surveyed by PwC last fall said they were investing in automating processes and systems in the next 12 months.

Here are 6 ways automation lowers your operating costs by making payment handling efficient:

1. Improve Expense and Cash Flow Management
2. Minimize Exception Items
3. Avoid or Quickly Resolves Compliance Issues
4. Give Customers More Ways to Pay
5. Speed Up Invoice Processing
6. Reduce Payment-Related Fraud

Optimizing AP and AR Efficiency

Accounts payable and accounts receivable are not a business’ big revenue drivers, but if they are set up to run efficiently they can play a big role in maximizing cash flow and reducing profit-consuming operating costs. 

The key is automating payments. There’s no more optimal way to streamline how AP and AR operations manage their daily trove of repetitive tasks, from electronically sending out invoices and past-due notices, to processing payments and receivables, to keeping all payments and related documentation organized. 

This frees up AP and AR personnel to do more essential work and eliminates or significantly reduces paper-based transactions, simplifies the retrieval of payment and remittance data, and helps lower operating expenses and costly errors.

Efficient payment handling via an automated back office platform can reduce operating costs because it allows you to:

1. Improve Expense and Cash Flow Management

A company’s AP and AR departments handle a mint of valuable data on payment traffic, invoices and past due customer accounts, for starters. 

Savvy companies know how to capture that data quickly and accurately, and analyze it to better organize their cash flow and limit unnecessary costs. 

This is most effectively done with an integrated automated payment solution that can give executives an up-to-the-minute status on their cash flow.

2. Minimize Exception Items

More efficient payment processing can help limit late fees and other costs from payments that fail to be fully processed. 

Such exception items often happen because of simple mistakes that typically cause errors processing checks, credit cards or ACH transfers.

An automated payment solution is key in minimizing exception items because it reduces human error and easily flags and fixes any issues.

3. Avoid or Quickly Resolve Compliance Issues

The bigger the business, the more its risk of payment compliance issues.

As a company’s customer base and sales grow, it will need to process increasingly more electronic payments. Whether it’s a debit card or a virtual credit card, accepting the transaction exposes the business to their customers’ personal information.

That means navigating a complicated process of banking industry and government compliance requirements, such as the Payment Card Industry (PCI) Data Security Standard, which was established to protect against fraud.

A merchant that is not PCI compliant and is exposed to a security breach can be fined up to $500,000 per incident.

An AR department that’s integrated with an automated payment platform can easily handle any number of transactions without concern that a compliance issue will arise, potentially leading to costly penalties. 

4. Give Customers More Ways to Pay

The last thing a company needs to be doing is making it tougher to bring in the revenue it needs to run its business, pay its vendors and other expenses.

Limiting customers to paying by check or credit card can cost you potential sales or, in the case of checks, add unnecessary processing time before that revenue comes in.

Automating AP allows you to accept all manner of payment types, including digital wallets and funds sent via text message, and enables you to process them without costly delays.

That can make a big difference, especially when funds are tight.

5. Speed Up Invoice Processing

Paying suppliers and vendors quickly isn’t always a priority for businesses, particularly when cash flow isn’t flowing comfortably. But taking care of invoices right away can translate into early payment discounts – an excellent way of lowering a company’s operating costs.

The reverse is also true. Wait to pay an invoice too long and you could risk a late charge. 

Here’s another instance where an efficient, automated B2B payment solution can ensure the workflow that takes invoices from the approval stage to paid is seamless and timely, no matter how many B2B payments require processing.

6. Reduce Payment-Related Fraud

Some costs, like payment-related fraud, are not part of the business plan, but can hurt your bottom line just the same. 

A survey from the Association for Financial Professionals for its 2022 report on payments fraud found that 71% of respondents reported their organizations were victims of payment fraud attacks in 2021.

While it’s impossible to prevent all payment fraud, an automated payment platform can help reduce the risk because it can be configured to ensure sensitive account information is only accessible by those cleared to do so.

Lower Operating Costs With More Efficient Payments

Against a backdrop of rising interest rates, high inflation and shaky global economy, reducing operating costs is a must for any business. Using an automated payment tool will not only slash operating expenses, but also yield many other benefits, including smarter cash flow management, and a more accurate and faster payment handling.

DocuPhase's payment automation solution integrates seamlessly with AP and AR systems, as well as a company’s existing ERP. It’s optimized to handle complex AP and AR workflows, resulting in problem-free customer and vendor transactions.

Ready to see how an AP and AR automation solution can optimize your business? Request a demo today.