How to Pay Vendors Online: ACH, Virtual Cards, & More

Aaron Stahl / Vendor Payments / August 16, 2022

Have you ever been in line at the grocery store when the little old lady in front of you whips out her checkbook to pay for her things? Well, if you’re still paying your vendors with paper checks, you’re likely giving them that same feeling. Checks are a slow process with many steps on both ends. It’s time to bring your business up to date and start paying your vendors online.

With digitized payments transforming the business world, only accelerated by the pandemic, most vendors these days prefer some type of online payment. You can choose to pay vendors by ACH, virtual cards, or other online payment methods, depending on your specific situation and needs.

Regardless of which method you choose to pay vendors online, it will make life easier for you, your employees, and the companies you work with. Here, we’ll cover the three main ways to pay vendors electronically, their benefits, and how to get started.

1. Pay Vendors by ACH

Many vendors prefer an ACH direct transfer. ACH vendor payment is a great option for paying electronically, as it has many advantages over paper checks. ACH stands for Automated Clearing House and is one of the primary ways businesses transfer money within the United States. These types of payments are often referred to as direct deposits.

While ACH payments to vendors aren’t instant, they typically take only one to three days to process. They are governed by the National Automated Clearing House Association (Nacha), which places rules and regulations which protect sensitive data. ACH transfers are usually free, but there may be daily or monthly limits on how much you can transfer.

Benefits of Paying Vendors by ACH

  • ACH vendor payment is secure. Nacha regulations help secure sensitive bank information, and each charge will pass through a clearinghouse that enforces these rules. In addition, these payments can easily be reversed if there are any mistakes or fraudulent activity.
  • There is little to no fee. Many banks will send an ACH vendor payment at no cost, and if there is a charge, it is usually under one dollar. You can often negotiate for lower prices if you’re making large amounts of ACH transfers.
  • They are easy and efficient. ACH vendor payments integrate easily with AP automation software which will help your accounting department minimize errors, do away with manual entry, and make record keeping easier.
  • Payments are fast. ACH transfers are much faster than traditional checks. Quick delivery of payments will keep your vendors happy.

How to Pay Vendors by ACH

Any vendor with a bank account in the United States can accept an ACH payment, and most are more than happy to conduct business this way. To start the process, you’ll need the recipient’s banking information, including the account number, routing number, and the name and address listed on the account. In order to get this information, you’ll send an ACH payment letter to vendors, which also can include terms and conditions.

Once you have this information, you can easily automate the process using a third-party or ACH processor. For example, P3 Cost Analysts will pay your vendors through whichever method they prefer, including ACH transfers.

2. Pay Vendors With Credit Cards

Online credit cards are another solid option for businesses who want to pay their vendors online instead of writing a check. Credit card payments are even faster than ACH transfers and come with benefits to the companies using them.

Not every single one of your vendors may accept credit card payments, as these businesses are usually required to pay processing fees on these transactions. However, with more and more companies moving to entirely digital processes, most businesses you work with will probably accept credit cards.

Benefits of Paying Vendors With Credit Cards

  • Lines of credit increase your purchasing power. You should always pay your credit card bill in full at the end of each month to avoid paying interest. That said, credit cards can give businesses easy access to short-term financing solutions.
  • It helps with bookkeeping. Many business cards provide user-friendly record-keeping tools through their banking portal. This can make it easier to track payments and manage expenses.
  • Many offer rewards or incentives. By using a business credit card, you can earn rewards such as airline miles or cash back with each payment you process. Each card offers different incentives and points per transaction, so research which benefits your business the most.
  • Build your business credit rating. This is especially important for businesses that are just starting. Using a business credit card and constantly paying your bill on time will increase your credit rating and help with financing down the road.

How to Pay Vendors With Credit Cards

Whether or not you can pay your vendors with a credit card relies on them. Vendors typically have to pay processing fees to accept credit card payments, but most businesses are set up now to receive them. To do so, you’ll have to either set up an account or enter your credit card details into their invoicing software.

If one of your vendors doesn’t accept credit cards, you may be able to use a third party to set up a credit card payment. For example, some banks offer payment partners that will send a paper check on your behalf while charging your card. Other third-party companies will charge your credit card and then send a check, ACH payment, or wire transfer to your vendor. Typically these services will add a processing fee on your end.

3. Pay Vendors With Virtual Cards

A relatively new way to pay vendors electronically is the virtual card, which uses similar aspects to a traditional credit card while offering more security and control. The main difference between conventional and virtual credit cards is that they’re typically only valid for one transaction. You have complete control of the amount, the recipient, and the date. On top of that, businesses have the ability to earn rebates and rewards when they use virtual cards.

For these reasons, virtual cards have our pick for the best way to pay vendors. In addition, integrating virtual credit card payments into your AP automation process is super easy, so your vendors get paid faster, and your employees can focus their time and energy on other tasks.

Benefits of Paying Vendors With Virtual Cards

  • They are the most secure option. The 16-digit credit card number and CVC on virtual cards are single-use only, meaning they’re not tied directly to your bank account. They leave no physical trail making fraudulent charges very unlikely.
  • You have full control. You can designate every detail of virtual card payments, including a specific vendor, dollar amount, and even time limit. Integrating your AP automation systems makes managing your cash flow easier with complete control and visibility.
  • You can earn cashback. Many virtual card providers offer rebates or rewards for utilizing their services. AP software can help you maximize your monthly rebates, making you cashback for your business.
  • It benefits your vendors, too. You can improve your relationships with your vendors with virtual card payments. They will receive payments faster, always be paid on time, and be able to organize expenses more efficiently. Plus, they don’t have to waste their precious time depositing checks.

How to Pay Vendors With Virtual Cards

If you normally pay your vendors with credit card, you can pay using a virtual card, as they function similarly. While this means that not all vendors will be able to take virtual cards, most businesses you work with will.

Most banks now offer virtual cards through their online banking portals. However, the process is even easier if you outsource or automate Accounts Payable. Third parties like P3 Cost Analysts can help with both AP automation and maximization of virtual card rebates.

Other Ways to Pay Vendors

Most companies these days prefer to pay vendors electronically, either through virtual cards or ACH payments. However, there are still other options out there. Depending on your industry, you might find some vendors are resistant to change and have specific requirements when it comes to paying them.

Some other payment methods include:

  • Check: The old school method of vendor payments hasn’t entirely disappeared just yet. However, they are not the ideal method of paying, as the process is long and time-consuming, and there’s a lot of room for fraudulent activity. You may reach for the checkbook if you need to pay someone on the spot or make a last-minute payment to avoid late fees.
  • Wire transfer: Wire transfers are often confused with ACH payments, but they’re not the same. Wire transfers are usually deposited on the same day but come with high fees of up to 40 dollars.
  • ACH debit: Very similar to an ACH transfer, an ACH debit allows your vendors to initiate the transaction on their end. You’ll have to share your bank information to pay vendors with this method, making it slightly less secure. When a vendor requests a payment, you’ll approve the amount, and vendors can receive their money within one business day.
  • Cash: While paying vendors with cash is legal, it’s not recommended. Cash transactions are hard to track and require extra documentation. Make sure to keep all receipts for any cash transactions, but avoid them if possible.

Best Practice Is to Automate Accounts Payable

Regardless of which electronic payment method you decide is right for your business, the best thing you can do is to automate your Accounts Payable. Using technology instead of manual entry, you can cut back on errors, costs, and time for payments. In addition, AP automation will help you streamline your processes and make bookkeeping faster and simpler.

P3’s Vendor Payment Automation Solutions tool will help you simplify and optimize vendor payments with minimal changes to your current accounting practices. Paying vendors electronically, through ACH or virtual cards, has never been easier. All you have to do is approve the payment within the cloud software, and P3 handles the rest. You can manage all of your invoices in one convenient location through our secure platform.

Start Paying Vendors Electronically Now

If you haven’t already switched over to a fully digitized payment process, now is the time. The benefits are endless, and you still have options to make sure you choose the right solution for your company. While we love virtual card payments thanks to their security and rebates, ACH transfers are also a secure and simple method. At the end of the day, there are benefits to both options, and it’s best to pay your vendors using their preferred method.

The easiest way to ensure you properly implement electronic payments is to allow P3 Cost Analysts to take over vendor payments for you. Our software is simple by design, so you don’t have to be an accounting expert to use it. It integrates easily into your existing process and has robust data capabilities, helping you track where your money is going. Take back your valuable time and leave the vendor payables to us.

Reach out today for a free consultation with a Vendor Payment Solutions expert.

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