By Anand Desai, VP of Finance at Vic.ai. Vic.ai won the ‘Best SaaS Product for Business Accounting and Finance‘ category, and a finalist in the ‘Best Enterprise-Level SaaS Product’ category at The 2024 SaaS Awards.

Improve cash flow and strengthen vendor relationships by addressing these common payment missteps.

Since the days of gold coins and cowrie shells, businesses have been paying vendors for products and services rendered and looking for ways to capture savings, wherever they can be found. Too often, though, businesses forget to consider how the payments themselves could help them save – in terms of both time and money.

As modern businesses endure the pressures of inflation and high interest rates, considering these factors — and capturing these savings — is more important than ever. That’s especially true for small and medium-sized businesses, which may have neither margins nor staff time to waste.

As your business does its best to make accurate, on-time vendor payments, don’t overlook these three all-too-common mistakes.

1) Too Much Complexity

While we’re far removed from the days of bartering, there are many ways a company can make payments – a fact that can result in time-consuming complexity for companies. Company credit cards, checks, electronic fund transfers, and other payment methods may be convenient for the user, but reconciling and managing multiple payment acceptance accounts is not. 

They say time is money, and this complexity creates a real time suck. However, the reality is that a business will always have to pay vendors through multiple methods. So, what can finance leaders do?

Where they can, companies should do their best to streamline. This could look like consolidating their systems, even funneling them through a “single pane of glass” control center. It means looking at their technology stacks to see what’s working, what’s not, and where there are redundant, outdated, or home-grown systems. It also means leveraging automation where there are manually intensive processes and systems, such as invoice or payment processing.

2) Not Enough Awareness

Especially for companies already operating on the margins, there isn’t much time to spare thinking about payments. However, a lack of awareness around payment types, technologies, and other factors can result in wasted opportunities — and money.

This “autopilot” approach to payments usually results in companies accepting a vendor’s default payment type and schedule, regardless of whether they are the best for either party. For example, companies often opt to pay higher fees for expedited payments, even when speed is unnecessary. When you order an item online and see the option to pay extra for expedited shipping, would you select the faster option if you weren’t in a hurry to receive that item? Probably not. These default options can be costly in real dollars, all for something that may not benefit the business or the vendor. 

Finance leaders should also make themselves aware of technologies that have the power to surface payment advantages. For example, some vendors offer early payment discounts to encourage customers to pay invoices earlier than the standard payment terms. For example, a “2/10, net 30” deal would mean that a 2% discount is offered if the invoice is paid within 10 days rather than 30.  Small percentages can add up; if a company pays out millions of dollars in payments, those recurring savings could have a substantial impact on cash flow and the company’s bottom line. Technology solutions are available to help finance teams surface these discounts and determine where they can take advantage.

3) Ignoring the Vendor’s Perspective

Regarding payments, it’s easy for companies to focus superficially on the methods that make the most sense for them. However, shifting that perspective to what works best for the vendor sometimes pays dividends.

Take checks, for example. Paying vendor bills by check is often the cheapest option for a company – unlike some electronic payment options, there are no fees for using checks, and the time between when a check is cut and when it gets cashed is more time that capital can sit in the bank gaining interest. 

However, checks are not easier — or cheaper — for the recipient. They require time and manual labor to open, process, and clear. They are also prone to uncertainty; unlike credit card payments, checks can bounce. 

Finance leaders should consider expediting this cycle to benefit vendors, even if using a credit card or other electronic payment seems more expensive at first glance. Customers and their vendors can have a good conversation about whether prices can be negotiated down in exchange for speedier, more reliable payments — offsetting the cost of those payments, and then some.

You should also keep the vendor experience in mind when choosing payment technologies. Some technologies might have costs built in — platform fees associated with the payment portal, for example. Lengthy onboarding processes or a clunky user experience will also turn off vendors. Bringing vendors along in these decisions and understanding their concerns around security, usability, and other factors can go a long way in strengthening those relationships — and that strength can translate into savings. 

Mistakes Can Always be Fixed

We’ve come a long way from the days when Roman soldiers were paid in salt. (Ever wonder where the word “salary” comes from?) Today, we have countless payment methods and technologies at our fingertips — and far too little time on our hands to consider them all. Under these circumstances, finance teams shouldn’t be blamed for sometimes blindly picking the quickest and easiest options.

However, once finance leaders recognize the opportunities they’re missing, it’s also their responsibility to act accordingly. By focusing on streamlining systems, increasing awareness around payment practices, and considering vendors when making payment decisions, businesses can capture big efficiencies and significant savings.