Payment Operations: Managing Outgoing Cash Efficiently

Payment operations might seem administrative, but they're actually strategic. How you pay vendors affects your cash position, working capital, vendor relationships, and fraud exposure.

The goal isn't just to pay bills—it's to optimize when and how you pay to maximize your cash efficiency while maintaining strong vendor relationships.

Payment Methods

Each payment method has tradeoffs in cost, speed, and control.

ACH (Automated Clearing House)

• Cost: $0-$1 per transaction
• Speed: 1-3 business days (same-day ACH available for premium)
• Best for: Regular vendor payments, payroll, recurring expenses
• Control: Reversible for up to 5 days in some cases

ACH should be your default for most payments. It's cheap, reliable, and widely accepted.

Wire Transfers

• Cost: $15-$50 per transaction
• Speed: Same day (often within hours)
• Best for: Large payments, time-sensitive transactions, international
• Control: Irrevocable once sent—use with caution

Reserve wires for situations requiring speed or certainty. The cost adds up if overused.

Checks

• Cost: $1-$5 per check (printing, mailing, processing)
• Speed: 5-10 business days until cleared
• Best for: Vendors who require them (increasingly rare)
• Control: Highest fraud risk; difficult to track

Minimize check usage. They're slow, expensive, and a major fraud vector.

Virtual Cards / Corporate Cards

• Cost: Often earn 1-2% rebate
• Speed: Instant authorization, statement billing cycle for cash impact
• Best for: Travel, subscriptions, vendors accepting cards
• Control: Built-in controls, easy to limit and track

Where vendors accept cards, virtual cards can extend your float and earn rebates.

Payment Runs and Timing

Payment timing affects cash flow, vendor relationships, and operational efficiency.

Establishing a Payment Cadence

• Weekly payment runs: Most common for growing companies. Predictable for vendors, manageable for AP team.
• Bi-weekly runs: Reduces processing overhead but extends vendor wait times.
• On-demand: Appropriate for urgent needs but creates unpredictable cash outflows.

Timing Best Practices

• Pay on terms, not early: If terms are Net 30, pay on day 30 unless there's an early payment discount.
• Consistent day of week: Pick a day (Tuesday/Wednesday common) and stick to it.
• Avoid month-end: Month-end is already busy; schedule payment runs mid-week.
• Consider cash position: Schedule payment runs when you know cash is available (after major collections).

Payment Terms as Cash Management

Standard Net 30 terms mean you have 30 days of free financing from your vendors. That's working capital you're not borrowing from the bank.

• Negotiate longer terms: Net 45 or Net 60 with larger vendors
• Evaluate early payment discounts: 2/10 Net 30 means 2% discount if paid in 10 days—that's ~36% annualized, usually worth taking
• Match to customer terms: If customers pay you in 45 days, try to get 45+ day terms from vendors

Approval Workflows

Effective approval workflows balance control with efficiency.

Core Principles

• Segregation of duties: Person approving payment shouldn't be person executing payment
• Approval authority limits: Define who can approve what amounts
• Documentation before approval: Invoice, PO match, receipt of goods/services
• Digital audit trail: Every approval recorded with timestamp and approver

Sample Approval Matrix

Exception Handling

• Rush payments: Define clear criteria and backup approvers
• Approver out of office: Designate alternates with appropriate authority
• New vendors: Additional verification before first payment

Fraud Prevention

Payment fraud is real and growing. Business email compromise (BEC) and vendor impersonation are top threats.

Common Fraud Schemes

• BEC - CEO fraud: Email appearing from CEO/CFO requesting urgent wire
• Vendor impersonation: Fake email claiming vendor changed bank details
• Invoice fraud: Fraudulent invoices for services never rendered
• Check fraud: Altered or forged checks

Prevention Controls

• Verify bank changes: Always call vendor at known number (not from email) to verify bank detail changes
• Positive pay: Bank service that matches checks against issued list
• ACH filters: Block unauthorized ACH debits
• Wire verification: Callback to known contact for large wires
• Dual authorization: Two approvals required for payments over threshold

Vendor Payment Terms Optimization

Negotiating Better Terms

• Leverage volume: Larger spending = more negotiating power
• Payment track record: Demonstrate history of on-time payment
• Long-term commitment: Offer multi-year agreements for better terms
• Reference competitors: Know what terms competitors offer

Evaluating Early Payment Discounts

Is an early payment discount worth taking? Compare to your cost of capital.

Terms by Vendor Category

• Strategic vendors: Prioritize terms negotiation—longer terms, discounts
• Commodity vendors: Leverage competition to get best terms
• Critical vendors: Balance relationship with terms—don't squeeze if you need them

Technology and Automation

Payment automation reduces manual effort, improves accuracy, and strengthens controls.

Core Capabilities

• Invoice capture: OCR scanning and data extraction
• Approval routing: Automated workflow based on amount, vendor, category
• Payment execution: Direct bank integration for ACH/wire initiation
• Vendor portal: Self-service for vendors to update info, view status

Popular Tools

• Bill.com: Most common for mid-market; full AP automation
• BILL: Same company, enterprise capabilities
• Tipalti: Strong for high volume, international
• Ramp / Brex: Card-first with bill pay capabilities