The Accounts Payable (AP) function in any organization is critical to its day-to-day business operations. However, the role it can play in that organization’s strategic growth is often overlooked. A purposeful approach to AP can help create efficiencies that drive down costs.
CommerceHealthcare® has worked with AP departments to analyze their current procedures and identify opportunities to automate processes, capture costs savings and realize revenue streams. Working in tandem, they crunch numbers to build a business case for better payment solutions. An AP card, or virtual card, is often a first, effective payment solution for AP departments, targeting those suppliers with an annual spend between $10,000 and $1 million.
There is already a business push for electronic payments via ACH, purchasing cards and similar electronic payments methods. That’s because checks are expensive; simply issuing and depositing check payments costs U.S. businesses between $26 and $54 billion annually.1
When healthcare organizations embrace virtual card payments, there are several best practices that contribute to its success.
- Leverage Technology – Your organization can save time and money when it automates its AP functions. Some digital tools that create efficiencies include automatically sending remittance details, electronically reconciling payments and real-time visibility to payment status.
- Avoid Long-Term Contracts – An extended agreement with your virtual card provider limits your flexibility should the provider not deliver on its promises. A shorter contract encourages providers to continually earn your attention by growing the card program after the initial enrollment period. It’s worth asking the virtual card provider about its client retention rate, which could shed some light on how well it’s able to enroll and grow supplier participation in virtual card payment programs for its clients.
- Redeem Monthly/Quarterly Revenue Payments – When paying with a virtual card, a portion of it goes to the transacting bank which ultimately comes back to you. You should collect that revenue as soon as the bank will allow, and in most cases that’s monthly, at best, or quarterly.
- Work with a Dedicated Enrollment Team – The AP department can create more efficiencies when more suppliers are enrolled in the virtual card program. For example, the CommerceHealthcare® enrollment team proactively calls and explains the benefits of virtual card payments to encourage suppliers to enroll in the program. They also continue outreach as healthcare organizations obtain new suppliers.
- Offer Alternatives – Some suppliers won’t want to use your virtual card program, so it’s important to have alternatives. CommerceHealthcare® offers Manual AP (also known as proxy payments); closed loop networks, where there is a negotiated interchange rate between CommerceHealthcare® and the supplier, and the supplier receives a reduced rate as compared to their existing merchant agreement; and straight through processing, which enables the buyer to generate the payment through its virtual card and the supplier receives the deposit into its merchant’s bank account.
If you don’t have a payments strategy in place yet, it may be time to consider how developing one could help your AP department become a key component in your organization’s overall growth.
Resources
1. V. Monga, "U.S. Companies Cling to Writing Paper Checks." The Wall Street Journal, March 10, 2014.