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What Is an Automated Payment System

If your accountant’s desk is stacked with paper invoices, it’s time to change to an automated payment system. With technological advances, the old, manual method of entering invoices is quickly becoming a thing of the past.

Introducing greater efficiencies and reducing human error in your processes, you may be wondering what this system means.

In this article, we offer an automated payment system definition and provide a payment automation overview enabling you to make an informed decision about the future of your business’ payments. Let’s get started.

What are automated payments?

Are you looking to have automated payments explained in an easy and accessible language? You’ve come to the right place. That’s because here we focus on the auto-pay basics that you need to know when considering an automated payments system for your business.

In short, automated payments focus on payments that your business makes to its stakeholders. The payment process is automated, meaning that with just a few clicks, you can initiate one-off or recurring payments to your employees, suppliers, partners and more.

It’s about reducing manual, error-prone processes to streamline your business’ payment approaches, making it safer and more convenient for you while saving you time and money.

How do automated payment systems work?

The automated payment process consists of three main phases. These are capture, approval and authorisation and payment. Let’s take a look at each of these in more detail.

Capture phase

The capture phrase focuses on invoice capture. When you receive an invoice via email, the automated payment system engages in payment data capture that extracts all the relevant information from the invoice, moving it to your payment system ready for transaction initiation.

Approval process

The approval automation phase looks at whether you have the necessary funds in your business account to make the payment, be it a one-off or a recurring payment. Once the payment processor checks these details, it will initiate a payment approval as part of the authorisation workflow.

Authorisation and payment

Next after payment authorisation is the actual funds transfer from your merchant account to your intended recipient. When you or your accountant click on “pay”, the funds will be transferred and you’ll receive a notification of the transaction’s completion.

Key components of automated payment systems

In order to get an in-depth understanding of the automated payment process, it’s important to know how these systems work. That’s exactly what we cover below.

Payment gateways

Most if not all automated payment systems have a payment gateway integration. The payment gateway is like the door that opens when you want to make a financial transaction. It connects you to the processor for payment processing, which is where the card issuer communicates with the card scheme (Visa, Mastercard, etc.) and determines if there are funds in your merchant account for the payment to go through. This transaction gateway must be highly secure to reduce any chances of errors or fraud.

Security features

In our modern world, payment security is a challenge that most merchants are faced with. This is why so many financial institutions and payment services providers focus on fraud prevention. It’s not only about ensuring compliance with strict regulatory requirements but is about keeping your account and funds as safe as possible with every transaction. This is where data encryption takes centre stage as sensitive payment information is encrypted. This means that malicious actors will not be able to decrypt the data and gain access to your funds.

Reconciliation and reporting

Another key element of automated payment systems is their ability to carry out reconciliation and payment reporting. Every business knows the importance of financial reconciliation every month. And these systems can help automate the process. This also means that you’ll be better prepared for transaction audits when you file your tax returns each year, ensuring full compliance.

Types of automated payment systems

There are several types of automated payment systems that you can choose from, although many modern solutions offer a number of options simultaneously. These may include recurring billing systems, Automated Clearing House (ACH) systems and credit card payment systems.

Recurring billing systems

Most often used for subscription payments, recurring billing is used to describe a payment that’s carried out on a monthly basis, for the same amount and to the same recipient. These payment systems automatically withdraw funds from your merchant account to pay suppliers or other stakeholders regularly. Many also offer automated invoicing, for easier and more efficient record-keeping.

ACH payment systems

ACH transfers refer to batch payments that are carried out regularly. These are another type in the group of electronic payments but instead of dealing with one payment, clearing of funds takes place in a batch to multiple different stakeholders, with different payment amounts at the same time. However, it is primarily used in the United States and is a popular choice for many merchants due to its low transaction fees.

Credit card payment systems

Last but not least, there is also the option to choose credit card automation. This means that merchants like you can make card payments to vendors and suppliers online through online payment processing that deducts funds from your credit card.

Top benefits of automated payment systems

With so many different automated payment system types and payment methods you can choose from, there are many reasons to automate. In this section, we focus on some of the major advantages of automated payments that your business can enjoy.

Time and cost savings

One of the first benefits of payment automation is the fact that it results in time and cost savings. Your business can enjoy significant efficiency gains as you no longer need to make direct deposits at a financial institution each month. Instead, you can make payments online in an automated way with a click of a button, resulting in important cost reductions. In addition to this, you can improve your time management and free up time for your accountants to focus on core business tasks as opposed to manual invoice entry and payments.

Improved accuracy

Automated payment systems also improve the accuracy of your payments. When done manually, errors can creep into your system, and you could overpay or underpay a vendor, resulting in drawn-out communication that is a hassle to deal with. However, with automated data entry, you’ll enjoy reduced errors and experience greater accuracy in payments.

Enhanced security

One of the major components of automated systems is its focus on fraud reduction. Through encryption and tokenisation, you can make secure payments while ensuring that you are fully compliant with local laws and regulations. This enhanced compliance can also strengthen the trust in your business while reducing opportunities for malicious actors to take advantage of your hard-earned funds.

Better cash flow management

Apart from enhanced security, you can also enjoy cash flow optimisation. Business owners know how important liquidity management is for their daily business operations. That’s why the perfect payment timing can ensure that goods and/or services arrive on time and your workflows will remain uninterrupted.

Increased transparency

Automated payments leave critical audit trails into each transaction, making sure there is no room for errors or fraud. The transaction visibility ensures greater financial transparency that gives you instant access to all and any transactions, facilitating stronger accountability and visibility, helping you know exactly where your business stands financially at any given moment.

Challenges of an automated payment system

While there are many advantages to choosing and implementing an automated payment system, there are certain challenges that may arise as you look to get started. Here are a few worth considering.

Implementation challenges

Apart from the initial setup costs that your business will incur (bearing in mind that they will be negated over time as you introduce more efficiency in your workflows), you need to consider the time factor when it comes to system setup. Not every automated payment system is created equal and you may encounter some deployment issues from your provider during the setup process.

Integration issues

If you use an enterprise resource planning (ERP) system and you want to integrate it with your automated payment system, you may notice some issues with system compatibility. It is not always possible to have software interoperability, which can easily result in integration challenges that may take time to fix.

Perceived loss of control

Another potential issue you may encounter when introducing an automated payment system in your business operations is user apprehension. Using new software takes time to learn and some employees may have control concerns. You’ll need to engage in change management and possibly appoint a change champion to drive the process and emphasise its benefits to the wider team that will be using the software.

Are automated payments safe?

With payment security at the forefront of every business owner’s mind, it’s essential to ask whether automated payment systems are secure. In order to be certain of the safety of automated payments, make sure that your service provider is Payment Card Industry Data Security Standard (PCI DSS) compliant. Also make sure that when it comes to their offering of secure payment methods, they provide encryption and/or tokenisation, in addition to using multi-factor authentication and 3D Secure methodology. If they offer these options, then yes, your automated payment system will be considered safe to use.

Choosing an automated payment solution for your business

If you are convinced of the advantages of automated payment solutions for your business and you’d like to do some research before choosing the best one for your needs, there are a few important criteria and factors to consider before you get started. 

Assessing your business needs

The very first aspect for consideration is assessing your business needs. Every business is unique and a one-size-fits all approach is often unproductive. That’s why you need to consider your business requirements in conjunction with specific tailored solutions that meet your unique needs. Carrying out a payment needs analysis should be your first step.

Evaluating features and capabilities

Once you’ve looked at your specific business requirements in terms of a payment solution, it’s time to perform a feature comparison and look at the solution capabilities. The software evaluation should contain everything your business needs to run your accounts and payments smoothly.

Vendor comparison

The next step involves choosing a provider. Make sure that in your vendor assessment, you not only look at features and costs but also their reputation online. Study ratings and reviews left by current and former clients and see whether their customer service is on par with industry best practices. Your supplier evaluation should give you peace of mind and confidence in your chosen provider.

Cost considerations

Many automated payment service providers have tiered pricing models. Some are based on a per-seat or per-user basis, while others offer a bulk sum for your entire team. You need to carry out a cost analysis to determine which option is more affordable and budget-friendly for your business. Remember that ultimately, your automated payment system should help you reduce costs over the long term. It’s about introducing greater efficiencies into your processes that save you time and money. That’s why you need to look out for hidden fees or added features that cost more over time. Factor these aspects into your ROI calculation.

How to set up an automated payment system

Now that you’ve chosen a vendor, it’s time to set up your automated payment system. Some vendors will do it for you, while offering training and support to your team. However, if you have to implement the software on your own, some of the steps to be aware of include the following.

Initial setup steps

When getting started with your system setup, you’ll need to set some time aside for the initial configuration. This may mean downloading and installing the software on the right computers or devices that your team will regularly use.

Integration with existing systems

If you work with ERP or other systems, you’ll need to check for system compatibility first. Your software integration process must be smooth and easy as opposed to challenging and cumbersome. For this reason, choose a provider that offers you the added service of seamless integration with your existing systems so that you don’t lose valuable time over technical issues.

Testing and monitoring

Before you get started with using your automated payment system, you should do a few tests first. This system testing will ensure that everything runs smoothly before your team starts handling the real work. Make sure that there are solutions for troubleshooting. And don’t forget to constantly engage in performance monitoring to identify any bugs or issues that need to be resolved quickly so that your team isn’t left hanging when an issue occurs.

Best practices for using automated payment systems

And now that your system is installed and ready for use, are there any best practices that you can follow? We recommend the following:

Provide multiple payment options

An automated payment system that offers payment flexibility through multiple payment methods is a great way to boost customer convenience. That’s why it’s important to choose a system that offers a variety of options.

Regularly test and monitor

Engage in continuous testing and system monitoring. This will ensure no bugs creep into your processes, slowing your team down. Regular performance checks should be a mandatory part of your workflows for seamless performance.

Ensure stakeholder buy-In

Getting user buy-in can be a challenge. That’s why you need to facilitate stakeholder engagement and encourage the use and adoption of the software among the members of your team. Change management is an important part of the process and should not be ignored.

For those of you who are ready to adopt seamless payments through a payment automation system, your search for the right vendor is over. With ServiceOS, you can take advantage of workforce management software.

It not only includes automated payments but facilitates smooth work processes and workflows that help your business scale. All this while ensuring your customers have a wonderful experience with your business.

To find out more, simply book your free demo with us or get in touch. Our friendly team is more than happy to assist you.

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