What is the vendor payment process and how to automate it?
What is vendor payment?
In the vendor payment process flow, vendor payment is the last step. The step where the purchasing business sends its vendors payments for the goods and services bought. The vendor payment process starts when the supplier shares an invoice.
That invoice of purchased items is then processed. Once the process and verification are done, ultimately, vendor payment is made.
Vendor payments can be made through various money transfer channels, depending upon what is accepted by which vendor. Furthermore, depending upon the speed of the business’s vendor payment process flow, vendor payments can be made either on time or sometimes after the deadline.
Crossing the due payment deadline means that the business would have to incur payment default charges along with the actual invoice amount.
Importance of vendor payments
Vendor payment is basically paying your suppliers for providing your business with goods and services required to make the finished product, which the business will sell. Hence, to maintain healthy relations with your suppliers, your business must have vendor management and vendor payment process in place.
A systematic workflow process ensures that the invoice received from the vendor is quickly verified through the proper stages and vendor payment can be made as soon as possible.
So, in order to make vendor payments the right way, your business needs a vendor management system. A vendor management system is the customized process/workflow every business sets up to ensure that all its vendors and the functions related to them are correctly organized.
Once you have a proper workflow, making vendor payments on time and in complete amounts becomes easier.
Vendor payment process explained
Step 1: Receive the invoices from the vendor
Any company’s vendor payment process starts by receiving the invoice for the purchased goods and services from the vendor.
The invoice can be received through various channels and in various forms. It can be delivered in person or sent over email or other communication channels.
Moreover, the invoice can be a document, PDF, Excel, etc.
Step 2: Verify the accuracy of the invoice received
The next task in line is to verify the accuracy and legitimacy of the vendor invoice. An invoice majorly contains invoice number, date of invoice issue, due date, GST and bank details of the vendor, item specifications, quantities, and price accordingly.
Hence, before making the payment, it is essential to verify all the details mentioned on that invoice. This verification is done by matching the invoice to documents like purchase orders, account statements, credit receipts, etc.
Precision confirmation is critical as there are times when the vendors might alter the numbers by mistake or intentionally.
Step 3: Make necessary journal entries and account for the invoice
Further in the vendor payment process comes the step of making journal entries and invoice accounting.
After ensuring the legitimacy of the invoice, it goes on to be entered into the accounting books.
Apart from making the usual entries of payments and debit entries, accounting invoices are done to see if the payment would be subjected to any withholding tax.
Step 4: Deposit the tax to avoid any penalty or additional taxes
In Singapore, before finalizing the total, the withholding tax must be calculated and paid to the tax authority directly. The tax must be paid right away.
This urgency is because if there is a delay in paying the tax amount, a 1% additional tax is added every missed month on the total amount.
Step 5: Get approval from the authorized person in your organization
The last step before making the vendor payment is getting approvals from the managers or authorized persons.
When the vendor payment process flow is done manually, an accounts payable team member is required to go to the managers and get signatures physically.
However, if the process is automated, the system has an approval workflow. Using this workflow, the invoice is shown on the managers’ screens, and they can approve it immediately.
Step 6: Make the payment
Naturally, the final step is to make the payment. The payments can be made by physically delivering cash or bank transfers.
An automated vendor management system would have features like corporate cards and international vendor accounts, using which your business can make vendor payments with just one click.
Having a virtual business account can significantly simplify the vendor payment process in several ways. Read our article on our virtual account to learn more.
Pay, manage, and track all your vendors on a single platform
Why is vendor payment automation necessary?
Save money and time
By adopting vendor payment automation, all the heavy tasks, right from receiving an invoice to the last step of payment, are taken over by the system.
This means entering the invoices into the system, recognizing the important characters, 3-way processing, two-way sync, and matching approval and payments; all is done by the software.
Minimal human intervention is only required in the last two steps. Hence, using automation software helps a business save a lot of money on resources such as labor and processing material.
Along with this, the vendor payment process becomes faster and better, which gives the employees time to be invested in other human-centric activities like planning and financial forecasting.
Improved visibility
One of the major tasks when it comes to expenses and vendor payments is maintaining accurate records and having an update at all times.
A vendor payment automation system enables you to easily navigate through the database and get all details about any transaction.
Plus, an initiated payment is always recorded in real-time. Meaning you would know the status of the transaction at all times.
The visibility feature is important to maintain control over the company's spending and also have a full report of the accountability of all expenses.
Cash flow optimization
Another crucial factor for running a business at a profitable level is managing the cash flow levels. You must have access to accurate expense and payment data in order to make the right decisions.
These decisions can be related to investments, cost-cutting, resource planning, etc. All this is connected to the cash flow of the company.
With an automated vendor payment process flow, you will know exactly how much the business is spending, on what materials and products, and what is the spending pattern and habits.
This way, your cash flow can be controlled, and optimization would work at its best.
Strong vendor relationships
With the amount of time the manual vendor payment process requires, it won’t be new if your company keeps missing due dates and payment deadlines.
Late vendor payments or inaccurate vendor payments lead to strains on the business-vendor relationship.
But if you get vendor payment automation software, not only will the processing time reduce significantly, but the system will also remind or give alerts for making vendor payments on particular due dates.
Automation software also specializes in automatically prioritizing invoices based on their due dates.
If you pay your vendor on time, it is very much possible that they might offer you comes rebates, cashbacks, or discounts on your next purchase. This becomes a win-win scenario for both parties.
Why Volopay for vendor payment automation?
As detailed above, there is no doubt that vendor payment process management automation is essential to survive in the cut-throat competitive market of today’s world.
So, the best expense and vendor management automation system in the Singapore market is Volopay.
It holds expertise in providing features that assist in organizing all aspects of invoice payments and vendor relationships.
Here are the Volopay vendor payment features and services.
1. Easy cross-border transactions:
The Volopay business account provides companies with corporate cards. Volopay corporate cards can be both physical and virtual.
However, both these types of cards work as standard cards but come with the added feature of being connected to specific departments and projects.
These are extremely useful for making cross-border payments. Easy international transactions are possible as Volopay has the potential to deal in more than 60 currencies.
For example, you have to pay a vendor in the US. Using the Volopay corporate cards, you just have to choose the vendor name, payment amount, and currency, enter some other transfer details, and the payment is made. It is that simple.
2. One-time burner cards for vendors:
As mentioned above, Volopay offers two types of corporate cards physical and virtual. The Volopay virtual cards are easy to create, and businesses can create as many as they want free of cost.
This is beneficial as you can assign each card to specific departments, employees, projects, vendors, etc. Expenses stay separate and become simpler to account for.
Now, virtual cards can either be recurring payment cards where you get to load in money every month for subscription-based expenses.
The other better and safer option is virtual burner cards. These cards expire after one use. This eliminates the chances of fraud or breaches.
3. Lowest FX charges:
Along with excellent management features, Volopay is also known for maintaining transparency. There are no hidden or extra costs on any service.
As Volopay provides an unchallenging way of making international transfers, along with this comes the benefit of the lowest possible FX charge.
In comparison to traditional banks' charges or other financial institutions, Volopay imposes a significantly lower FX rate.
4. Invoice management with 3-way invoice sourcing:
With a Volopay subscription, you get a comprehensive invoice processing system. With this system, your AP team would not have to invest much energy into the vendor payment process flow.
Especially at the matching step. Every invoice received from the vendor is matched against different documents like purchase orders and goods receipt notes.
This is done to check the authenticity of the invoice. Volopay automatically takes the important information from the invoice and checks it against these documents to provide accurate results.
5. Alerts for managing unnecessary expenses:
There are various expenses incurred by a business that might not be that necessary. But only if there was a system that could detect these cost-saving areas and highlight them.
Well, there is. Volopay. The expense reports and analytics help businesses find these loopholes or cost-saving regions.
Plus, you can also set alerts on different expense categories to cut down on any unnecessary expense occurrence.
6. OCR technology for capturing invoices:
The most essential feature for any vendor payment management system is OCR technology.
Optical Character Recognition is used to recognize the important characters from the vendor invoices and then convert them into a form that is accepted by the system for further processing.
This means that you might get an invoice in the form of a document, PDF, Excel, or other formats.
The OCR technology would extract the necessary details and store them in the company’s database, which is made according to the company’s needs.
7. Real-time expense visibility and tracking:
Whenever an expense is incurred through the Volopay platform, the system instantly records it and maintains a database for all those transactions.
Plus, whenever you make a vendor payment, from start to end, the payment transfer is tracked, giving you updates about each step of the vendor payment process.
All this is done in real-time, which means that any chance of fraud is successfully terminated.
8. Easy accounting integration:
Another amazing feature offered by Volopay is direct and seamless accounting integration. All transactions incurred through the platform get recorded in the accounting books.
Moreover, with tools like auto-categorization and expense mapping, the system recognizes the transactions and their types and enters the specifics under the right categories.
The Volopay platform provides accounting integration with Xero, QuickBooks, Netsuite, and more.
9. Two-way sync of bills from accounting software:
Every detail of an expense is crucial for auditing purposes. Keeping this in mind, Volopay facilitates you with a feature of two-way sync.
All the tiniest details of vendor name, invoice due date, number of items, tax information, etc., are automatically synced with the accounting tool.
Plus, any changes you make in either of the sections get automatically updated in the other one. Hence, all the manual data entry burden just vanishes.
10. Custom multi-level approvals:
Expense completion requires approval. So, Volopay has an in-built approval workflow. You have to first assign approver positions to the people who hold the power to sanction transactions.
You can set up to five approvers on different levels. Now, every time an expense request is raised, it will have to be approved for actually going through.
The approver would get all the basic detail on their screens, like the amount, the employee who raised the request, the purpose of the expense, and more.
This way, no transactions go unnoticed, and the chances of creating fake transactions or altering the expense amount diminish significantly.
11. Multi-currency wallets:
With a Volopay business account, you get the facility to store money and conduct transactions in various international currencies.
Volopay multi-currency digital wallet is compatible with more than 60 currencies. This eases up the whole process of making international transfers.
To make an international currency transfer, you just have to choose the currency specification and amount. It automatically gets converted, and the transfer process is initiated without any hurdles.