Inworks

The primary role of electronic payments is to improve efficiencies in the payables process. However, if the management of ePayables becomes a costly and time-consuming task for AP clerks, it begs the question: are ePayables more or less effective than paper checks?

There are many forms of ePayables, and multiple banks and payment solution providers offering electronic payment methods. Although it is vital for hospitals to adopt a variety of payment methods in order to accommodate each of their suppliers’ processes, managing multiple payment methods within the AP department is costly and inefficient. The most effective way to manage and streamline an AP system comprising multiple payment methods is with the help of a qualified payment solution provider.

To understand the role of third-party payment management, let’s first compare the various types of electronic payments:

Electronic Payment Methods

ACH. Electronic fund transfers that enable payments to be pushed directly into the supplier’s bank account. ACH payments are very efficient, but require suppliers to disclose their banking information. Consequently, enrolling a large percentage of the hospital’s suppliers into an ACH program can be difficult.

Supply Chain Financing and Dynamic Discounting. The supplier can choose to receive their payment before the due date, in exchange for an invoice discount. These early payments are funded through a third party or line of credit, which enables the payer to extend their days payable outstanding.

Purchase-Cards. Credit cards the hospital provides to its purchasers for point of sale purchases. Purchase-Cards (P-Cards) reduce the need for check requests and purchase orders, while still providing information on the purchase. The disadvantage to P-Cards is reduced internal controls and the added task of tracking all the active P-Cards circulating through the organization.

Ghost-Cards. Credit card numbers, without a physical card, which the hospital’s suppliers keep on file to process invoice payments. Ghost-Cards also lack significant internal control, essentially giving suppliers access to the hospital’s line of credit. Also, Ghost-Cards create reconciliation issues because suppliers may process payments for the incorrect amount, they may batch payments without notifying the hospital, or not process payments.

Virtual-Cards. Onetime-use credit card numbers, also without a physical card, which are provided to suppliers for the exact amount of the payment due. Virtual-Cards (V-Cards) are the most secure form of credit card payment because suppliers hold onto a six-digit card number prefix, and are given a different suffix for each transaction. This gives the hospital control over the amount processed, but does not solve the problem of payments that are mistakenly unprocessed by suppliers—which remain open liabilities for the hospital.

Buyer Initiated Payments. Credit card payments that are pushed into the supplier’s bank account—much like an ACH payment, except transactions go through the credit card network. These credit card push payments guard against fraud, while ensuring that all payments are immediately processed.

Outsourced Paper Checks. Paper checks are not an electronic payment, as far as the supplier is concerned; however, the hospital can transmit a single electronic invoice file to a payment solution provider, who will then cut and send those checks to suppliers. This eliminates the need for the hospital to do check runs.

The Role of Third Party Payment Management

The most effective way for an organization to manage and benefit from these multiple payment methods is to use a payment solutions provider. Such providers enable organizations to automate the transmission of a single invoice file to cover all payment types. The payment solution provider takes responsibility for all payment management, including:

• Supplier enrollment
• When suppliers are paid
• How suppliers want to be paid
• The type and format of remittance information suppliers desire
• Payment tracking for both the hospital and its suppliers
• Rebate revenue generated from payments
• Payment funding
• Reconciliation information
• 1099s

Electronic payments should boost efficiency in the hospital’s AP process, not create additional tasks. Electronic payment programs that required the AP department to manage cards, enroll suppliers, submit remittance information, and handle credit memos are not providing a complete payment solution.

Contact Information

Matthew Carlson
VP of Sales and Marketing
866.986.1684
mcarlson@inworks.com