The Payments Process: Five Areas to Review

Sara Palmer
Commerce Bank

When a check or invoice arrives in your office, what happens next? Whether big or small, B2B or direct to consumer, every business has to process payments. Accounts receivable and accounts payable dictate cash flow, which in turn affects everything from inventory to payroll. The process by which you pay bills, process payroll and receive customer payments may be your business’ most valuable piece of infrastructure.

To help ensure your business’ payments process is as streamlined, efficient and effective as possible, we’ve listed five areas to review in your office:

1. Are there ways to automate any manual processes? In your office, does someone open the mail, gather the payments and invoices, post payments, get approval on invoices and prepare the deposits? If so, that’s a significant number of steps to keep track of—especially if you receive a high volume of payments and invoices. If you haven’t yet, you may consider a lockbox service, which handles much of that work for you. Both payments and invoices go to the lockbox service, where an image file and payment file are created to record everything that’s been received. Those files can be automatically posted to your accounting or ERM system. You will still need to review any “exceptions” that don’t match company or payment information, but otherwise the system runs itself.

2. Do you have to go to the bank to deposit checks? Depending on the business and your process, you may have to scramble sometimes to get to the bank before 5pm on check deposit day. You have to be diligent about keeping track of the checks, making sure not to leave one on the copier accidentally or lose one on the way to the bank. Rather than preparing a deposit slip to hand-deliver to the bank, you can deposit your checks remotely. With remote deposit, you can scan checks in the office and submit an electronic record to your bank. This creates an electronic receipt of all of your deposits, and you’re able to receive the amount of your deposits more quickly.

3. How are you sending and receiving payments? When you deposit paper checks to a bank, it can take several days for the funds you’re owed to be available in your business account. We call this “float” time. Even a float time of a couple of days can put a strain on cash flow. There is a way to turn checks into an electronic record that processes as a same-day deposit. With an ACH transaction, funds are posted faster. Sending and receiving payments via ACH can cut down on the number of paper checks you’re processing, preventing delayed or lost payments. It also creates a digital record of the payments, including additional information like invoice and account numbers, which helps you stay organized. A number of accounting systems have the capability to create an ACH file that is then sent to the bank. Businesses that use remote deposit and ACH can scan checks in their office and see those funds in their account as quickly as next day.

4. Does one employee wear all of the payments hats? Especially in a small business, the payments process may fall to one person. From putting the deposit together, to processing the deposit and reconciling bank statements, he or she may be responsible for the entire process. What happens when that person is having a bad day? What if they’re scheduled to go on vacation and no one else is trained to handle the process? While it may seem counterintuitive, it is more efficient to segregate duties and cross-train your staff. They split the work, can cover each other during a vacancy, and can check each other’s work to catch any errors. You can also rotate employees through different roles to keep their job interesting and help them feel more engaged and productive. This helps ensure your payment cycle is not dependent on one person.

5. Have you had someone observe your daily process? In the flurry of a busy week, month or year, it can be easy to lose track of why you do things—and even harder to identify areas to improve. During what is often called a “back office review,” a consultant studies your payments process. As an objective third party, they can identify opportunities to increase efficiencies, resolve issues or institute new processes. If you’ve had a back office review, but not for several years, it may be worth scheduling one now. Your processes may not be keeping up with your business, you may have experienced some changes, or there may be new technologies available.

There are many moving parts to a payments process. It typically involves personnel, technology, customers, suppliers, your bank, and any number of spreadsheets and steps in between. For something that you and your team manages on a daily basis, do yourselves a favor and make it as streamlined (and headache-less) as possible. With some attention to the different phases of a payments process, and maybe with some help, you can make improvements that will save everyone time. iBi

Sara Palmer is an assistant vice president of treasury services for Commerce Bank.