Vendor payments: Processes, methods, and tips for business owners
- What is a vendor payment?
- Why optimizing vendor payments matters
- Vendor payment process: Step by step
- How to check and troubleshoot vendor payment status
- Common vendor payment methods
- How to set up vendors for ACH payments
- Considerations for international vendor payments
- Tips to improve vendor payments
- Streamline your vendor payment process with Ramp
Managing vendor payments helps your company maintain strong supplier relationships and keep cash flow steady. As your business grows, the process becomes more complex, especially when handling international vendors or a high volume of invoices.
What is a vendor payment?
A vendor payment is the final step in the purchase-to-pay (P2P) cycle. When your company buys goods or services from a supplier, the vendor issues an invoice, and your business pays it. In other words, vendor payments mean settling invoices with suppliers — the point where obligations turn into actual cash outflows.
Vendor payments go beyond simply paying bills. Done well, they help strengthen vendor relationships, improve cash flow, and reduce administrative work. Optimizing this process makes it easier to pay suppliers on time, manage working capital, and maintain accurate financial reporting.
In practice, vendor payments follow a structured invoice-to-pay flow: receive the invoice, match and validate it against purchase orders (POs), route it for approval, schedule the payment, execute it, and reconcile it in your records.
Why optimizing vendor payments matters
Optimizing vendor payments helps your business run more smoothly by improving cash flow, reducing fraud risks, strengthening vendor relationships, and lowering costs.
- Improved cash flow: Efficient payments help you avoid cash shortfalls and offer flexibility in timing. Negotiating extended terms, like net 60 or net 90, can free up working capital.
- Reduced fraud risks: Secure digital methods such as ACH payments or virtual cards create audit trails that deter business email compromise (BEC) and other fraud. According to the 2024 FBI IC3 report, BEC scams accounted for $2.77 billion in losses, making them one of the costliest forms of fraud.
- Stronger vendor relationships: Timely, reliable payments build trust, which can lead to better pricing, preferential treatment, and long-term partnerships
- Cost savings: Early payment discounts and automation both reduce costs. For example, taking a 2/10 net 30 discount (2% off if paid within 10 days) is the equivalent of earning a 36% annualized return.
Vendor payment process: Step by step
The vendor payment process is the sequence of actions a business follows to pay suppliers, from invoice intake through reconciliation. An optimized process reduces errors, improves cash flow, and ensures suppliers are paid on time.
1. Capture invoices
Vendors submit invoices by email, mail, or portal upload. Using automated invoice processing with optical character recognition (OCR) reduces manual entry and errors. Required fields such as purchase order number, vendor ID, and payment terms should be captured before the invoice moves forward.
2. Validate and match
Verify the invoice details against purchase orders and receipts using 2- or 3-way matching. Route exceptions to a queue and apply role-based approvals. Automated workflows speed up processing and enforce segregation of duties.
3. Route and approve
Send validated invoices through an approval workflow with thresholds that match manager authority levels. Larger amounts can trigger extra review. Segregation of duties lowers fraud risk, and service level agreements (SLAs) keep turnaround times tight.
4. Schedule and fund
Batch invoices into payment runs and align them with your days payable outstanding (DPO) targets. Always account for bank cutoff times to avoid delays. Confirm funds are available in the right accounts before releasing payments.
5. Pay vendors and send remittance
Release payments via the method agreed with each vendor—ACH, wire transfer, virtual card, or check. Send remittance advice with invoice numbers, purchase orders, and payment dates so vendors can reconcile quickly.
6. Post and close
Mark invoices as paid in your financial reporting system. Apply credits or discounts, and track partials to prevent missed balances. Record accruals for expenses incurred but not yet paid to keep liabilities accurate.
Going forward, regularly perform payment reconciliations to maintain accurate financial records. Real-time reporting tools are especially useful here to help you track payment statuses and get visibility into outstanding liabilities.
Automate reconciliation and monitor key AP metrics
Tools can match bank feeds, map remittances, and auto-post to your ERP. Monitor metrics like on-time payment rate, DPO, discount capture, and invoice cycle time to identify bottlenecks. At month-end, follow a close calendar, resolve open exceptions, and maintain audit-ready documentation.
How to check and troubleshoot vendor payment status
Even with a well-run process, vendors and AP teams sometimes need to track payments in real time or resolve delays. Here’s how to check status, interpret updates, and fix common issues.
Check payment status
Most vendors and AP teams track payments through an AP system, vendor portal, or vendor profile. To look up a payment, you’ll usually need details such as the invoice number, PO, or vendor ID.
Understand status updates
Common payment statuses include:
- Received: Invoice logged in the system
- Pending approval: Waiting on manager review
- In process/scheduled: Queued for payment run
- Sent/initiated: Released to the bank or network
- Paid/cleared: Funds confirmed received
- Returned/failed: Payment rejected
- Voided: Payment canceled
Clearing times vary: ACH typically takes 1–3 days, wires clear the same day, and checks take longer.
Find vendor remittance details
Remittance advice usually includes invoice and payment information, plus vendor contact information if follow-up is needed. Vendors can often self-serve by downloading remittance details from a portal instead of contacting AP directly.
Fix common issues
Payments may be held for missing W-9/W-8 forms, unmatched POs, duplicate invoices, pending bank verification, or compliance flags. Resolving these issues often means correcting invoice fields, updating tax forms, or rerouting approvals. If problems persist, escalate to your AP team or bank.
Common vendor payment methods
There are several ways to pay vendors. The right method depends on cost, speed, security, and vendor preference.
| Payment method | Pros | Cons | Best use cases |
|---|---|---|---|
| ACH | Low cost, secure, automated; Same Day ACH available | Processing time (1–3 days); requires accurate bank data and verification | Recurring domestic payments, payroll, and subscriptions |
| Wire transfers | Fast and reliable; same-day domestic, 1–5 days international | High fees | Large, one-time payments or international transfers |
| Virtual cards | Enhanced security and trackable; potential vendor rebates | Not accepted everywhere | Subscriptions, multiple vendors |
| Credit cards | Rewards and extended credit; help with cash flow | Processing fees; risk of misuse | Smaller, frequent purchases or when rewards offset fees |
| Checks | Simple with a paper trail | Highest fraud and operational risk; slow to deliver or clear | One-time payments and local vendors |
| Real-time payments (RTP) | Settle in seconds, available 24/7/365 | Limited bank coverage; amount caps vary | Urgent payments and exceptions where speed matters |
How to set up vendors for ACH payments
ACH should be your default for domestic vendor payments. It’s the U.S. equivalent of direct deposit: low cost, secure, and reliable. But it only works if you collect and verify banking details properly.
Requirements and information to collect
Ask vendors for their legal name, tax ID, remit-to address, bank routing and account numbers, and a completed W-9 or W-8 form. Always collect this information through a secure portal or AP tool, never by email.
Bank verification and security
Confirm account ownership with microdeposits (usually 1–3 business days) or instant account verification via a secure connection. For changes, use callback or dual-control approvals. Set up alerts for bank detail updates and enforce segregation of duties to reduce fraud risks.
Processing time and cutoffs
Standard ACH payments settle in 1–3 business days. Same-day ACH is faster if initiated before the bank’s cutoff. Vendors should also expect first payments to take longer due to account verification, and payment runs should align with your AP schedule.
Considerations for international vendor payments
As your business grows, cross-border vendor payments require extra attention to detail. Collect the right banking information, manage compliance, and set expectations about timing and fees.
Required details and compliance
International payments require details such as the International Bank Account Number (IBAN), Society for Worldwide Interbank Financial Telecommunication (SWIFT) or Bank Identifier Code (BIC), and any local bank identifiers (for example, sort code or CLABE). The beneficiary name must exactly match the bank record to avoid delays.
You’ll also need to meet compliance requirements. Collect the right tax forms (such as W-8BEN or W-8BEN-E) and screen vendors against Know Your Customer (KYC), Office of Foreign Assets Control (OFAC), and other sanctions lists.
FX, fees, and timing
Foreign exchange (FX) rates and bank fees can reduce what vendors actually receive. Be aware of the spread between the interbank rate and your provider’s rate, and account for intermediary or lift fees. Timing varies by corridor — some payments clear in a day, others take several. Set expectations with vendors and include charges in remittance details so reconciliation is easier.
Local rails and formats
Using local networks can cut costs and speed up settlement. Examples include the Single Euro Payments Area (SEPA) in the EU, Faster Payments or BACS in the UK, electronic funds transfer (EFT) in Canada, UPI in India, and PIX in Brazil. Working with a cross-border payments partner often gives you direct access to these rails.
Documentation and records
Keep complete records of invoices, contracts, tax forms, and payment confirmations. Ensure your ERP reflects realized FX rates and fees, not just the gross invoice amounts, so financial statements stay accurate.
Automation for international vendors
AP automation tools simplify global payments by storing vendor banking details securely, tracking FX, calculating taxes, and paying in each vendor’s preferred currency. Automation reduces manual effort and minimizes compliance risks.
Tips to improve vendor payments
To further streamline your vendor payment process, apply these strategies.
- Centralize your AP process: Consolidate all payment activities into a single platform to improve visibility and reduce errors
- Automate invoice capture and approval: Use AP automation tools to extract invoice details and match them against POs. Automated workflows reduce manual effort and speed up approvals
- Standardize payment schedules: Consistent payment cycles help vendors know when to expect funds and make cash flow easier to manage
- Negotiate payment terms with vendors: Work with vendors to negotiate favorable terms that align with your cash flow needs
- Embrace e-payments: Switching from checks to electronic payments such as ACH, wires, and virtual cards improves speed and reduces costs
- Tailor your approval workflows: Create multi-level approvals for higher-value invoices or riskier spend categories to add security and control
- Monitor and analyze payment data: Use real-time tracking and analytics to identify inefficiencies. Monitor KPIs such as on-time payment rate, DPO, and invoice cycle time
- Strengthen vendor relationships: Offer a self-service portal where vendors can track status, update details, and download remittance information
Streamline your vendor payment process with Ramp
Efficient vendor payment management strengthens supplier relationships, improves cash flow, and reduces overhead.
Ramp automates vendor payments end to end. Our vendor management software streamlines invoice processing, eliminates duplicate payments, and helps you capture early payment discounts without straining cash flow. Companies using Ramp cut processing time while gaining full visibility into payment statuses and obligations.
By transforming your payment workflow, Ramp enables finance teams to shift focus from manual processing to strategic initiatives that drive growth. The result is a more efficient accounts payable function that supports stronger vendor relationships and better financial performance.
Ready to see it in action? Explore a free interactive product tour.
FAQs
ACH payments are generally considered the most efficient method for businesses making regular payments to vendors. They’re low-cost, secure, and allow for automated transactions.
Electronic funds transfer (EFT) is a broad term for any electronic movement of money, including ACH, wires, and card payments. ACH is a specific type of EFT in the U.S. that moves funds in batches through the ACH network, typically taking 1–3 business days.
Check the payment status in your AP system or vendor portal and confirm it matches the invoice, PO, and remittance details. Legitimate payments should clear through secure methods like ACH or wire, include a trace/reference number, and appear in your bank reconciliation.
A vendor portal lets suppliers check payment status, download remittance details, and update info like bank or tax forms. AP automation tools handle the entire invoice-to-pay cycle, including intake, matching, approvals, payments, reconciliation, and audit controls. Portals are best for vendor self-service, while AP tools give finance teams end-to-end control and reporting.
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