To accommodate the needs of as many vendors as possible, your business may need to use a combination of electronic payment methods.
Electronic payments are a win-win. Your vendors will love that they can get paid faster and your CFO will appreciate that they cost less than generating and mailing paper checks. AFP estimates that issuing paper checks costs a median price of between $2.01 and $4 per check.
But the tricky part is knowing which electronic payment types your business should be using. Each has risks as well as rewards, and some methods are better suited for certain situations.
Electronic payments a great alternative to checks
Here’s a breakdown of the pros and cons of the most common electronic payment methods, as well as the best times to use them, according to A/P software vendor Mineral Tree.
ACH payments. These work best for recurring (e.g., monthly) charges. And Same Day ACH is growing in popularity for businesses.
- Pro: ACH payments are typically free or low-cost.
- Cons: They can take several business days to process if you aren’t using Same Day ACH. Also, they can be high-risk and less secure because vendors can access your company’s account information.
Commercial credit cards. Drawing directly from a corporate line of credit to pay for business-related purchases, they’re ideal for T&E expenses, recurring payments and vendor purchases.
- Pros: They’re low-cost, speedy and fairly secure.
- Cons: From an invoice perspective, they’re often difficult to track and reconcile.
Virtual cards. Single-use, 16-digit, plastic-less cards are ideal for sending highly secure vendor payments.
- Pros: There’s no cost, and virtual cards are speedy and secure due to payment tokenization. Some cards allow businesses the opportunity to receive rebates on purchases.
- Con: Few vendors accept them.
Purchasing cards (P-cards). These cards are most useful for small-dollar and high-volume purchases, and for early payments that earn a discount.
- Pros: P-cards are low-cost because they have a non-revolving credit line that has to be paid in full. They’re also fairly secure and speedy. Daily spending limits can be set. And the cards reduce the volume of purchase orders and invoices.
- Cons: There are late fees, and it can be difficult to audit individual transactions for high-risk or fraudulent activity. Unlike credit cards, they’re not allowed to carry a balance. P-cards also typically have restrictions or spending limits that you’ll need to ask about.
