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Processing vendor payments is one of the most resource intensive aspects of accounts payable (AP) management. Yet it is imperative to pay suppliers and contractors on time to take advantage of early payment discounts and maintain good relationships. Automating the payment process through payment runs can help free up significant staff hours while accelerating the payment cycle.
In this comprehensive guide, we will first understand what automatic payment runs are and how they work. We then explore configuration best practices, benefits, analytics and continuous improvement tips to help manage automated payment processing effectively.
What are Automatic Payment Runs?
Simply put, automatic payment runs allow companies to automatically select outstanding vendor invoices, create payment proposals, post payments to general ledger accounts, print checks and communicate payment details to suppliers.
They provide the dual benefits of cutting down on repetitive manual work while enforcing configured rules so vendors get paid accurately as per contracted terms. Modern ERP systems like SAP and Oracle have inbuilt capabilities to define, schedule and monitor automatic payment runs with rich configuration flexibility.
Overview of the Automated Payment Process
At a high level, an automated payment cycle has the following key steps:
1. Invoice Processing – Paper or electronic invoices received from suppliers are recorded in the system through OCR or manual entry. Details like amount and due date are captured.
2. Payment Proposal – The ERP analyzes open invoices to create a payment proposal that lists which invoices will be paid on which dates depending on due date and payment terms.
3. Proposal Review – AP staff review the proposal to make any corrections if needed. Invoices can be put on hold, payment dates can be adjusted etc.
4. Payment Posting – On scheduled date, payments are automatically posted to vendor‘s accounts and remittance details sent.
**5*. Reconciliation – Once payments clear with the bank, delivered invoices are reconciled and closed. Exceptions if any are handled.
Let us look at how automating this cycle improves efficiency and controls compared to manual processing.
Manual Vs Automated Payment Processing
Typical manual accounts payable processing relies on clerks performing a range of repetitive and rules-based tasks that automated payment runs can eliminate or simplify.
![manual vs automated payment processing]
As you can see, automation replaces many routine tasks by enforcing pre-defined rules and workflows. This provides several advantages:
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Increased AP staff productivity – Removing mundane manual work like pulling invoice batches, verifying calculations, printing checks etc. saves significant time that can redirected to value-add exceptions management.
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Fewer errors – Automated computations and confirmations as per pre-configured rules minimizes chances of incorrect amounts being paid.
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Better compliance – System ensures invoices are paid on time as per contracted terms avoiding penalties. Audit traceability also improves.
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Enhanced visibility – Real-time dashboards into completion status, exceptions and metrics helps management control the payment process better.
Let us look at how to configure automated payment runs to realize these benefits while avoiding common pitfalls.
Configuring Payment Runs
Well configured payment runs are key to minimizing disruptions and exceptions once automation is enabled. Here are some leading practices around configuration:
1. Map approval workflows
Invoice and payment approval workflows should be mapped prior to activating automated runs. Invoice batching parameters, authorities and limits for managers approving payments should be set.
2. Define payment prioritization
Clear policies on payment prioritization where available cash is insufficient to pay all invoices need to configured in the system rules engine.
3. Cleanse supplier master data
Invalid or duplicate supplier accounts and contacts can disrupt payment processing leading to breaks. Master data should cleansed beforehand.
4. Set tolerances
Tolerances for early or late payments should be defined per business rules to avoid overpayments or short payments.
5. Build reporting dashboards
Reports and metrics around cycle times, discounts utilization, electronic payments adoption need to be designed to track performance.
With foundations through configurations firmly laid, the time and effort savings from activating automated payment runs can be significant.
Impact of Automation on Payment Processing Times
Transitioning from manual payment workflows to automated runs has a material impact on payment cycle times as the next chart demonstrates.
![payment automation impact]
Automation reduces invoice receipt to payment time by around 40% from over 12 days to about 7 days. Key drivers include:
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Streamlined batching – System auto-batches invoices ready for payment based on due dates rather than manual effort.
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Faster remittance creation – Payment proposals get auto-generated based on rules rather than paying down batches one by one.
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Structured approval process – Invoice and payment approvals are system workflow driven leading to quicker signoffs.
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Auto-posted payments – Final payments get posted to vendor accounts automatically accelerating closure.
The reduced payment cycle times translate directly into enhanced relationships with suppliers through more on-time payments. It also helps the organization capture early payment discounts wherever applicable thereby improving bottom line impact.
Growing Use of Electronic Payments
An added advantage of automated systems is increasing adoption of electronic payments like ACH and wire transfers rather than paper checks. As per recent data, over 75% of B2B payments in North America now happen electronically compared to just 50% five years back as shown next.
![b2b electronic payments]
Key drivers of this shift are :
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Cost efficiency – Electronic payments cost 70-80% lesser than printing and mailing paper checks.
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Balance sheet optimization – Electronic payments clear quicker improving working capital cycles.
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Enhanced security – Electronic remittances have built-in encryption and reduce incidence of fraud.
For finance teams, increasing usage of electronic vendor payments directly improves bottom line through lower processing costs. It also frees up additional staff hours for supporting value-added analysis.
Best Practices for Ongoing Management
While automation simplifies bulk of routine payment activities, strategically managing exceptions and continous improvement opportunities is key for sustained efficiency gains.
Here are some recommendations in these areas:
1. Analyze metrics frequently – Leading indicators around cycle times, discount leakage, electronic payment adoption trends need to be reviewed weekly or monthly. Variances to targets should be assessed to determine improvement opportunities.
2. Review suspended invoices – Invoices stuck in suspensions or errors need quick resolutions through root cause analysis so acceptable closure rates can be maintained.
3 Target top vendors first – Collaborate with top vendors to shift to electronic payments and enable straight-through-processing through data interchange. High value supplier relationships need to be given priority.
4. Expand self-service – Suppliers should be provided with self-service access to invoice and payment status through online portals rather than relying on manual responses from AP staff.
5. Continuously train team – As payment automation leaders like SAP and Oracle release newer features and capabilities, ensure the AP team is constantly trained to leverage the latest technology enhancements.
Through structured priority around metrics analysis, issue resolution, user adoption and capability development, finance teams can ensure sustained benefits from payment run automation.
Conclusion
Payment runs are no longer complex custom-built processes but secure and flexible automation capabilities packaged with modern ERP platforms. Leading practices around configuration, performance tracking and continuous improvement can help companies streamline a traditionally manual intensive set of AP activities.
With over 75% of B2B payments expected to become electronic in the next 2-3 years, automating the payment process is becoming a competitive priority. As this transition accelerates, the procure-to-pay function will need to elevate itself from transactions processing to insights generation. Payment runs will be the key driver freeing up capacity to make this pivot possible.
I hope you found this guide helpful. Do share any other perspectives or advice you may have around managing automated payment runs. Let me know if you need any other materials; I‘m happy to discuss further and help in any way!