Last week I wrote about the counter-intuitive advantages of paying invoices on time, or even paying them early. In that discussion, I briefly mentioned automated invoice payment and the use of paycards. Because I have witnessed contractors not only save money but actually make money when they combine these two approaches, I thought I would share some specifics.
Automating AP to Save Money
The first step is to reduce the amount of time and effort you’re spending paying your bills. Entering data, verifying invoices against receipts, getting approvals, then manually issuing checks is the normal workflow for Accounts Payable (AP). If you process just a handful of vendor or subcontractor bills per week, this is manageable through a manual process. But once you get to hundreds or thousands per week, you are talking about a significant investment in labor just to cut your AP checks. Most contractors I know, even some smaller firms, are well above the hundred checks per week mark.
So step one boils down to finding construction management software that includes automation tools for AP. Most basic packages allow you to enter invoice data into the system and apply the costs against specific jobs and phases of work. More sophisticated systems add to the automation. For example, you can find software tools that validate your received goods against purchase orders or that automatically route invoices through an electronic approval process.
Virtualizing Payment to Make Money
With an electronic and automated AP system in place, you can easily take the next step—find a method of payment that pays you back. There are services available from companies such as Comdata that offer invoice payment via virtual credit cards. Your AP process stays the same, but instead of cutting checks, you simply pay electronically through the service, and the service returns the processed transaction information for automatic reconciliation.
So far so good—less manual work and more predictable cash flow. But what makes this virtually irresistible is the fact that you can receive a rebate on each payment. Rebates of course vary, but I know companies who receive 1.5% back on each invoice processed through a virtual payment system, and companies for whom the monthly rebate amount runs well into the healthy 5-figures—an especially attractive proposition in times when every dollar counts.
How automated is your accounts payable process? Do you use virtual payment for your vendors?