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Automating payment transactions: benefits and challenges

April 24, 2024

Payment automation is comprehensively transforming and revolutionising the global financial landscape. This innovative concept encompasses the use of advanced technology to automate and optimise the collections and payments process. 

But what exactly does payment automation entail and what benefits can it offer businesses? In this article, we will address this issue and give you the keys to achieve seamless automation in your financial and business processes.

What do we mean by payment automation and what does it cover?

Payment automation is a process whereby technology is used to manage and process financial transactions automatically. This process typically covers all stages from the issuing of invoices to the collection and processing of payments.

In fact, this process includes both the automation of customer collections and the automation of payments and cash outflows themselves.

Automation of client collections

Customer receivables automation focuses on the complete flow of cash receipts, from the automatic generation of invoices, to their dispatch, payment tracking and confirmation of receipt of payment. 

This automation can be especially beneficial for companies with a high volume of invoices, as it can drastically reduce the time required to manage this process.

Benefits of automating payment transactions

Automating payment operations can bring a number of significant benefits to businesses. Below, we explore the most salient of these:

Saving costs

This is arguably the main benefit of payment automation, and the reason why many companies are choosing to integrate payment automation into their business. Automation reduces operational costs by minimising the need for manual intervention in the payment process. 

This translates into fewer working hours spent on invoice management and payment, which in turn reduces labour costs. At the same time, it allows these people's hours to be spent on more productive tasks, which increases the overall operational efficiency of the company.

Streamlining the process

In a manual environment such as the one in which many businesses operate, managing collections and payments can be a time-consuming and delay-prone process. This is because it involves a number of steps that, while necessary, can be time-consuming if done manually. These include generating and issuing invoices, confirming payment, reconciling accounts in the accounts and generating reports.

By automating this process, each of these steps can be performed more quickly and efficiently. Payment automation systems can generate invoices, send payment reminders, receive and record payments, and reconcile accounts in a fraction of the time it would take to do it manually.

Saving time

Automation also saves time. By eliminating the need for tedious and error-prone manual processes such as data entry and reconciliation, staff can spend more time on strategic tasks.

But automation can also speed up the payment cycle by enabling instant payment and real-time transaction processing. This is especially useful for companies that handle a large volume of transactions or operate in a global environment where transaction times can be a critical factor.

Lower error margin

In the world of finance, mistakes, however small, can have significant and to some extent devastating consequences. Manual payment transactions are prone to errors because of the number of steps involved and the possibility of human intervention at each step. For example, an error in entering an account number or due date can result in incorrect, duplicate or late payments.

In an automated system, once data is entered and set up correctly, complex calculations can be performed, invoices generated, payments processed and transactions reconciled accurately and consistently. In addition, many systems can also perform automatic data checks and alert users to potential errors or inconsistencies, allowing problems to be corrected before they become costly errors.

Better segmentation

Segmentation refers to the division of something into different parts or sections. In the context of payment transactions, segmentation can be particularly useful to organise and track payments more effectively. The automation of collections and payments allows for a more detailed and accurate segmentation of payment transactions. For example, payments can be classified by supplier, by type of expense (such as salaries, taxes, supply costs, etc.), by department within the company, or even by specific projects. This segmentation can be customised according to the specific needs of each business.

This detailed classification has several benefits for companies. Firstly, it facilitates the tracking and control of expenses. If payments are effectively segmented, it is easier to identify where the money is going and why. This can help managers and accountants identify areas of overspending and make more informed decisions about how to allocate resources.

Better information for analysis

Data collection and analysis are fundamental parts of any successful business strategy. In the context of payment transactions, automation can provide companies with a valuable source of detailed and accurate data that can be used to gain deeper insight into their financial performance.

Payment automation not only performs financial transactions, but also automatically records essential details of each transaction, such as date, amount, recipient, category of expense, among others. This digital recording is much more efficient and accurate than manual tracking methods and allows for real-time data collection.

Lower risk of fraud

Financial fraud is a persistent problem in the business world that can have serious consequences for companies, including significant financial losses and reputational damage. The automation of payment operations can play a crucial role in reducing the risk of fraud.

Manual payment operations can be vulnerable to fraud in a number of ways. For example, employees may alter cheques or invoices, or they may create fictitious suppliers. In addition, if payment information is not adequately protected, it may be susceptible to identity theft or phishing attacks.

Generally, these automated payment management systems include a number of safeguards and controls that can help prevent fraud. These may include two-factor authentication, data encryption, pre-defined spending limits, automatic approvals and real-time transaction tracking. This is also aided by the use of artificial intelligence, which has opened up new possibilities to prevent and detect fraud before it occurs.

How to implement it

Implementing payment automation requires a careful analysis of your company's needs and capabilities. Some essential steps include:

  • Assessing business needs: Before choosing a solution, it is critical to understand how your business handles transactions and what problems need to be solved.
  • Choose a suitable solution: There are many payment automation solutions available, each with its own features and capabilities. It is important to choose one that fits your business needs.
  • Train staff: Implementing any new system requires proper training to ensure that all users understand how to use it effectively.
  • Monitor and adjust the system: Once implemented, it is essential to monitor the system to ensure that it is working properly and make adjustments as necessary.

What tools are used to implement it?

There are a number of tools that can be used for payment automation. Some of the most popular include:

i. Invoice management systems: These systems automate the invoicing process, from creating and sending invoices to receiving and recording payments. Some of these systems also include features that facilitate payment tracking and automatic payment reminders. 

ii. Electronic payment solutions: These solutions allow businesses to send and receive payments electronically, which can be faster and more secure than traditional payment methods. Electronic payment solutions can range from simple money transfer applications to complete business payment systems that can be integrated with other software systems. Examples of such solutions include PayPal, Stripe or Square.

iii. Accounting software: These applications can automate various accounting tasks, including payment management, and their integration with other branches of the business. These include ERPs, which allow most business processes to be managed in one place.

iv. Treasury management software: This type of software is used to manage, control and analyse all financial activities of an organisation, especially those related to current assets. It provides a consolidated view of all cash movements and allows users to efficiently manage payment transactions, bank reconciliation, cash forecasting, risk management and much more. Among them is Embat's software, with which your organisation will be able to control its treasury in a centralised and fully efficient way.

Conclusions

The automation of payment transactions can be a powerful tool for improving the efficiency and accuracy of financial transactions for any company, regardless of its size and sector of activity. 

However, it also presents challenges, such as the need for training and the implementation of new technologies. But despite these challenges, the benefits of payment automation often far outweigh the costs, making it a valuable investment for any business.

Toni
Berga
Co-founder @ Embat
Toni worked for over a decade at J.P. Morgan in Spain and the UK as the Executive Director of Investment Banking and Commercial Banking for family businesses before co-founding Embat.

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