Electronic Money Movement, Part 2 – Bill Pay vs. Credit Cards

To refresh your memory, in Part 1, we looked at the differences between ACH Payments and wires, as well as when you should use one versus the other, and why.  If you missed it, just click that link and take a look. 

Now we are going to shift to a more specific concern for businesses today – how a company can make bill payments electronically and remove the need to send a paper check (hello, check fraud protection). This can help your organization’s cash flow. 

Paying Bills Electronically

Electronic bill pay (banks often refer to this service as simply Bill Pay) is a process that allows companies to pay their bills electronically, rather than through the mail. This is popular with businesses because it saves them time, money, and paper.

To give you an idea, the exact cost varies, but it’s said that the cost of merely sending a payment via mail can cost up to $5 per bill (factoring in time, postage, ink, waiting, etc.). This is a solution for businesses to avoid having to write checks, make trips to the bank and purchase the supplies necessary to create and send those checks… again, all saving you time and money.

(*side note – Accountix also provides Bill Pay as a complete service connected to a company’s Accounts Payable (AP), but that is a slightly different story. You can take a look at this article if you want to learn more.)

Common situations when a business may pay bills electronically include:

• You no longer want to write checks.
  
• You desire to schedule payments ahead of time in order to avoid late fees or help with organization and process.
  
• You want to have the money taken out of your account at the time of payment (essentially removing the issues around the “float”)

Benefits of “Bill Pay”:

Similar to the other electronic forms of payment, the same core benefits apply (audit, fraud, and cash flow), with some special and additional features:

• An Audit Trail
  • Triggering the need to pay a bill electronically is done via an account user (either using online banking or another bill pay system), and therefore a company is able to track who initiated that bill.
    
• Reducing Check fraud
  • When a bill is paid electronically, the funds are sent via ACH whenever possible.
    
  • If ACH is not possible (oftentimes the recipient is a smaller company), then a paper check is mailed out. However, the paper check is cut off of a routing and account number that is not directly tied to your business’s bank account. So, should the check get lost or stolen, your routing and account number are not jeopardized.
    
• Improved Cash Flow
  • Similar to ACH payments – the funds for the bill are pulled at the time the payment is being sent. A company does not have to account for the time it takes before the check is deposited, or spend the time requesting a check be deposited so that you can reconcile your accounting.
    
  • When considering Cash Flow, it’s ideal to pay a bill on the bill’s due date.  You keep your money longer, rather than paying sooner than necessary.  Using a Bill Pay system lets you schedule payments closer to or on the due date.
    
• This electronic money movement service can be used to pay your recurring bills (i.e. rent or utilities), or you can use this to pay business expenses and vendors.

Paying Expenses Using a Credit Card

Businesses use this form of electronic money movement every day. No actual cash or check is exchanged. Some businesses may charge a fee if you pay with a credit card (thus, ACH Payments could be an option).

While it is common for businesses to pay vendors and bills using a credit card first, and then via check if a credit card is not accepted… we would encourage you to look at paying via credit card first, and then via ACH or Bill Pay as a secondary option (instead of using a check).

We all know the common situations for using a credit card. It’s for any business expense, any time.

(*side note – In order to keep accounting more clear, do your best to separate all business and personal charges.  Be diligent about not using your business credit card for personal expenses.)

Some benefits of using a credit card:

• Audit Trail
  • Payments are connected to a card and you can track who made that specific payment

• Reduces Check Fraud
  • No need to send a check.
    
  • Also, in the fraud department, if the transaction does turn out to be fraudulent, you can dispute this with your credit card company. Unlike using a debit card – it is not money tied to your account that is being disputed.
    
  • It is also much easier to close a credit card should fraud occur, rather than close a bank account that is connected to the check or debit card that has been jeopardized.
    
• Cash Flow
  • You make a payment and have up to 30 days to pay off the expense. This is a mini-line of credit if used properly.
    
  • Using a credit card can help to mitigate the swings in business expenses. You are able to hold on to your cash longer, and make one large payment at the due date rather than paying bills daily or at random, and have a swing in cash flow.
    
• You generate points and rewards that can be put back into the business – need we say more? 🙂

So – now that we have broken down various payment options (wires, ACH, electronic bill pay, and using credit cards) hopefully this sheds light on electronic money movement, and you feel more comfortable with those forms of payment. 

Overall, the common themes for why EMM is beneficial for a business are audit trails, reducing check fraud, and improving cash flow.

Have more questions or want to brainstorm? We can help!