What’s Your Payment Strategy? 4 Tips to Build a Better One

If your payment strategy is to send payments and hope for the best, you’ll probably be surprised to know that many of your colleagues in finance have the same senseless strategy.

But if you check the cracks, you might find a few payments wedged in there, possibly causing riffs with suppliers and reputational damage.

Nearly half of all finance teams don’t have a formal payment strategy, according to an AvidXchange study.

Advantages of a Formal Payment Strategy

Now, let’s say your good pal who heads up a finance team in another industry has a formal payment strategy. She’s more likely to have a full grasp of her cash flow and is able to capture early payment discounts.

How much more likely? Your pal with a formal strategy is twice as likely to gain real-time cash flow visibility (67% vs. 33%). She’s also far more likely to capture early payment discounts (44% vs. 28%), the AvidXchange study found.

Those who have formal payment strategies say it allows them to optimize across costs, rebates and supplier preferences.

What’s more, finance departments that build a formal payment strategy aren’t just locked into one kind of payment. The study found that they diversify to maintain a better strategy for their payment process.

• Mostly use ePayments with some traditional methods (47%)
• Use ePayments and traditional methods equally (29%)
• Exclusively use ePayments (16%)
• Mostly use traditional methods with some ePayments (6%), and
• Exclusively use traditional methods like payer checks (1%).

So regardless of your preferred or emerging methods, a formal system can help streamline payments, capture rebates and control costs.

Here are four best practices for a formal payment strategy:

1. Measure

Incentivize yourself to make a formal strategy. Rather than wait for an invoice and pay, a strategy will help you accelerate payments to capture early payment discounts, maximize rebate opportunities, and formally track payment outcomes.

But you need to know where you are now to understand those benefits. That starts with measuring how payment decisions contribute to financial performance. Use AI tools to review a quarter’s worth of payments and compare that to the available early payment discounts and rebates that you could’ve received.

2. Assess Volume, Relationships

Take a closer look at how all of your money moves — inbound and outbound volumes — to identify your key customers and suppliers.

With this, you can get a better look at existing risks, bottlenecks and areas with heavy manual work. When you look at both sides of the ledger, you can find distinct opportunities that might not show up if you only considered your outgoing payments. One discount you give and one you don’t receive start looking like bigger losses.

3. Establish Clear Terms and Methods

You likely have established explicit payment windows for your vendors. Hold yourself to the same standards.

That’s one way to be certain you cash in on discounts.

4. Diversify Methods

As we noted above, most organizations have diverse payment options. Be prepared to make digital and traditional payments.

Even better, consider matching payment methods to specific transaction sizes.