How automated bill payments work: A guide for businesses

If you’re used to manually processing bills, automated payments can transform the way you do business.

Automatic bill payments save you time, reduce human errors, and ultimately improve your overall financial health. In this article, we'll explain what automatic bill payments are, their benefits and challenges, and how to set up an automated payment system for your business.

What are automated bill payments?

Automated bill payments are scheduled transactions that allow you to pay recurring expenses like rent and utilities automatically, typically through your business's financial institution. They’re sometimes called automatic bill payments, auto-pay, or recurring payments.

Businesses typically use payment automation for:

• Recurring bills: Rent, utilities, phone, and internet bills
• Subscriptions: Accounting software, website hosting, CRMs
• Payroll: Paying your employees biweekly, monthly, etc.

The technology you use to facilitate and schedule payments is often called an automated payment system. Although similar, this isn't the same as online banking or mobile apps that allow for both manual and automated bill payments. These are often known as electronic payment systems.

Automatic bill payments vs. typical bill pay process

With automated bill pay, you simply upload a vendor invoice, and the software quickly generates a bill with line items and payment details. All you have to do is review, approve, and schedule the payment. And with the addition of AI, modern software can even handle the review and approval of recurring bills, leaving you with only the task of clicking a button to execute the payment.

When done manually, the typical process is quite lengthy, requiring several hours of someone's time:

That’s why implementing automatic bill payments helps businesses manage these consistent expenses. They allow for timely payments without needing to process each one manually.

Types of automated payment systems

The main types of automated payment systems include:

• Bank-based automated payments: These systems directly withdraw funds from your account when you authorize a payment schedule for rent, utilities, or loans. You link them to a bank account, so the fees are often lower. They’re best for recurring, predictable payments.
• Credit card auto-pay: Some business credit cards allow you to set up automatic payments to charge your card on a set schedule for expenses like phone bills, monthly subscriptions, or memberships. These work well if you're looking to manage your cash flow or earn rewards.
• Third-party payment platforms: Examples of payment service providers include PayPal, Stripe, and Square. They act as an intermediary between businesses and are used when you need a fast way to send or receive payments without involving sensitive financial data.
• Automated bill pay software for businesses: Tools like Ramp allow you to manage the entire bill pay process automatically. These are great for small or large businesses with multiple vendors, clients, invoices, and payments.

Benefits of automated payments

Automatic payments are more efficient than manual processing, offering a streamlined approach to managing recurring expenses. Automatic bill payments provide many advantages, including time savings, reduced errors, avoiding fees for late payments, and enhanced security.

Time savings

According to a 2023 survey from PYMNTS, 76% of CFOs say that manual payments take up too much of their finance team’s time. Automating the process can shave up to 16 business days off the payment period. Not only does this free up your finance team to be more strategic, but it also streamlines the workflow, meaning fewer delayed payments and fewer bottlenecks.

Reduced errors

When you process payments manually, even the most careful teams risk duplicate payments, misplaced numbers, or incorrect amounts. Automation syncs directly with your accounting software to ensure financial accuracy and reduce reconciliation errors. It also includes automatic validation checks and standardized workflows to help eliminate errors.

Improved cash flow management

Automated bill payments provide a consistent payment cadence, leading to reliable cash flow and efficient financial oversight. And auto-pay minimizes the risk of missed payment dates, helping businesses make on-time payments to maintain a strong payment history, which supports a healthy credit score.

Let’s say you’re manually making payments using spreadsheets, checks, and one-time bank transfers. This time-conusming process can lead to common mistakes like duplicate payments, late fees, and missed due dates that could cost you hundreds or even thousands of dollars each month.

Automated bill payments minimize your invoice processing time. You can also flag late fees and duplicate payments in advance to avoid mistakes, and your finance team can allocate time to negotiating better payment terms.

Enhanced security and compliance

Many automatic bill pay systems provide advanced security measures, including data encryption, multi-factor authentication, and fraudulent charge flagging, to reduce the risk of unauthorized access or fraudulent activity. Automation also helps with regulatory requirements because you can maintain and track a secure and consistent process.

Common challenges with automated payments

While automated payments bring convenience and efficiency, they can also create challenges. These are some of the most common drawbacks, along with tips to overcome them:

• Risk of overdrafts or insufficient funds: If you don’t monitor your account closely, you could incur overdraft fees for insufficient funds when your payments process. Be sure to maintain a sufficient buffer in your account and set up low balance notifications.
• Integration issues: If you can’t integrate your automatic bill payments with your accounting or ERP software, you might face reporting errors or additional manual work. Look for automated payment systems with flexible APIs or a strong customer success team that can help with integration. Test your systems before going live, and work with your IT team to ensure ongoing maintenance.
• Security and fraud concerns: Storing sensitive financial data can put you at risk of data breaches or potential fraud. Data encryption and multi-factor authentication are table stakes for modern automated payment systems.

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How to set up automated payments for your business

Setting up automated payments streamlines your finance operations, saving you time and money. Popular platforms to choose from include Ramp, Stripe, and even accounting tools like QuickBooks. Here's what the typical process looks like:

1. Select a payment platform

When selecting your automated payment platform, consider the following criteria:

• Cost: Some platforms offer subscriptions, while others charge by transaction
• Features: Look for options such as recurring payments, invoice creation, and approval workflows
• Integration: Make sure you can connect it to your existing accounting software
• Customer support: Understand the level of support you can expect from the vendor after onboarding

2. Integrate with accounting tools

Here’s how to integrate your automated payment platform with your existing accounting tools:

1. Check compatibility: Before you get started with integration, confirm the platform is compatible with your accounting software
2. Integrate: Your tool will either have native integrations or will connect via API
3. Sync payment data: Make sure your payments are synced to update your books automatically and to match invoices with vendor information
4. Establish user roles: Determine who has access to the software and their permission levels
5. Set rules for reconciliation: Define how your transactions match and reconcile bank statements and ledger entries

Following these steps is especially important for data synchronization and reconciliation. This ensures your financial records remain accurate and helps keep you prepared in the event of an audit.

3. Test your workflow

Once you’re set up, test your new system to confirm everything works smoothly. Do so by:

• Running internal simulations
• Confirming payments sync in your accounting system and bank feed
• Ensuring the right people are notified in the approval workflow
• Reviewing payment history for tracking
• Preparing a plan in case the system ever goes down

Best practices for using automatic payments for your business

Automatic bill payments can save time and resources for businesses of all sizes. Follow these best practices to maximize your benefits and minimize risk:

• Regularly review and update payment schedules: Set a monthly or quarterly cadence to make adjustments for things such as early-payment discounts, renegotiated payment terms, or other contract changes
• Monitor for failed or duplicate payments: Set alerts for failed transactions, make sure your system flags duplicate payments, and reconcile accounts regularly so you catch any errors as soon as possible
• Maintain clear documentation and audit trails: Keep accurate records to ensure compliance and easily resolve disputes, including tracking user actions with timestamps, storing digital copies of invoices and logs, and periodically backing up your files
• Train staff on system use and security protocols: Assign role-based access for your team, so that you have proper permissions in place. Also, make sure to onboard your team to the payment platform. That way, they understand things such as multi-factor authentication and good password hygiene.

Make automated payments and approvals easier with Ramp

Managing bills can be a major hassle for businesses. Ramp’s automatic bill pay software streamlines bill entries, approvals, and payments, freeing your team from manual work while maintaining the financial controls that finance and accounting teams need.

With faster processing, fewer errors, and complete visibility, you’ll save time and protect your bottom line. Try an interactive demo to see how Ramp can transform your bill pay process.