Unsurprisingly, your vendors want to be paid on-time! The gap between the day you receive the bill to the day of payment offers low-hanging fruit for improvement. If it seems silly to save money by paying more efficiently, are you maximizing your resources?
Let’s explore some common payment options. Below are a few metrics with basic measures. An unweighted and rudimentary point scale (Poor = 0, Good = 1, Great = 2) will help evaluate options in total.
|Payment Type||Security||Cash flow||Availability||Cost||Score|
How about a deeper dive?
Security – cash transactions offer no protection. Checks blatantly state your account and routing number and float around in mail parcels. Credit card security varies from carrier to carrier, but most have fraud protection even in the case of card skimmers or loss of the physical card. ACH is generally in a walled and encrypted system which can be subject to multi-factor authentication, offering maximum security.
Cash flow – cash transactions are terrible. You have to get the cash in hand (the point of cash loss) before you even pay the vendor. Check floats are nice, but depending on mailing times and time the vendor holds the check prior to deposit, it is still tough to manage cash flow. ACH gives you 100% reliability on cash being released, however, it doesn’t provide a benefit. Credit cards, particularly for invoices with terms (net 10, net 30, etc.), are great because you can add 1-30 extra days by the time you actually pay money for goods/services.
Availability – cash is rarely accepted unless you’re in-person at a vendor. ACH is widely accepted, but you may encounter vendors who refuse to give their bank information out for this purpose. Credit cards are also widely accepted, however, some vendors do not pay for credit card processing, or pass the fees on to you to pay by credit card. Checks are accepted by all but the smallest vendors, who might deal on a cash-only basis.
Cost – cash requires you to obtain it and deliver it, producing a great deal of overhead cost for a simple transaction. Checks require check stock, envelopes, stamps, time to write/print/sign, and mail, which adds up to a significant amount of overhead. ACH still requires time to create batches and obtain approval, but outside of any monthly fees to enable ACH functions, have minimal cost. Credit cards, similarly, can be digital-only, but better yet are rewards cards that actually return 1-5% of the purchase price. A critical point, however, is to pay your credit cards in full every month and on-time!
My broad recommendation? Every company is different, but in most cases, I recommend the following. Pay by credit card first and accumulate those sweet rewards or cash back! For vendors that don’t accept credit cards, require them to give you bank information to pay by ACH. Avoid cash and use checks as a last resort.
This is not a comprehensive or exhaustive list, but should give you some data to consider!
Want assistance making the right choice for your vendor payment structure? Let me help! I offer free consultations and I’m available even on nights and weekends. Contact me today!