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Resources   /   Glossary

What Is Payment Processing

A significant component of accounts payable includes payment processing, meaning the action of paying debts owed. Accounts payable (AP) consists of all money owed by a company to creditors or vendors. This may include accrued business expenses, materials, vendors, and suppliers. Accounts payable are short-term debts that a company must pay on a schedule. Traditionally, payments were made using checks or in-person methods of payments. Today, some companies have AP departments still working with checks, manually sending payments through mail services.

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Payment processing can be much easier, involve less error, and be fully automated. Fully automated AP processes are possible with services such as AvidXchange. AvidXchange features include digitizing invoices and using collaborative dashboards, speeding up approval processes and online payment options through effortless payment industry options. What is the payment industry? It is a rapidly growing and constantly evolving industry surrounding payment methods. Payments previously occurred physically at specific points of interaction. For example, at a sales counter, at the bank, or through the mail using checks received and processed by accounting departments. What is the payments industry today? Today, the payments industry includes various online and automated payment options, including services such as Paypal, Venmo, or automatic back transactions.

AP departments processing payments and initiating and completing transactions in any form are now moving towards automated and digitized payment processing. AvidXchange offers automated bill payment features. After invoice approval, the Avidpay feature automatically processes payments to suppliers. Always pay on time with AvidXchange automated bill payment options and make bill payments electronically. Implementing AvidXchange AP software allows you to integrate with your current accounting system, keeping your existing system intact while streamlining and digitizing AP processes. Moving to a paperless payment processing system like AvidPay through AvidXchange helps you save money, increase efficiency, reduce risks and improve relationships with vendors.

How Does Payment Processing Work

There are many payment process steps for accounts payable departments. Payment processing is much more than looking at an invoice and writing a check. Accounts payable professionals have a workflow to follow, requiring approvals, accuracy checks, and resolving discrepancies and paperwork before processing any payments. So, how does payment processing work?

Payment processing steps include:

  1. Purchase or work order created.
  2. Goods or services received.
  3. Invoice created.
  4. Invoice entered into the accounting system.
  5. All amounts matched – purchase/work order, invoice for goods/services, verification of goods/services received (receipt report).
  6. Discrepancies resolved.
  7. Acquiring the approval for invoices from the appropriate staff member.
  8. Payment processed (cannot process payment without approval).
  9. Transaction reviewed.
  10. Record of transactions stored in an audit-ready format.

This payment process flow shows the many steps involved in the accounts payable payment process. When handled manually, payment steps include important tangible papers that must travel from person to person, often outside the AP department, before payment processing. The initial creation of a work or service order, approvals for payment, and even the payment processing. Some companies still use paper checks and postal services in their payment processing flow. There are innovative methods for accounts payable departments to accomplish payment processing tasks that eliminate the need for chasing paperwork and approvals. The payment process flow within an accounts payable department is a well-established process that works. However, innovative, intelligent technology can help make the process more secure and efficient.

Online Payment Processing

Online payment processing is necessary today due to the amount of business that takes place remotely. Many companies exchange goods and services online. Providers of goods and services who conduct work in person also move to online payment methods. One reason for this is payment security, efficiency, and the ability to track payments quickly with digitized records of transactions. The challenge for accounts payable departments is finding a way to process payments online while still adhering to the bill payment preferences of vendors and suppliers. Each company operates with a different set of preferences for receiving payments. Therefore, companies must find an online payment processing system that works well for their AP department and satisfies the requirements of those with whom they conduct business.

AvidXchange has an online payment processing feature, AvidPay. With over 700,000 suppliers in the AvidXchange network. These supplier bill payment preferences are integrated into the AvidXchange bill payment automation system. AP professionals are used to meeting the requirements of their company’s payment methods and manually ensuring suppliers’ conditions are met. Years of processing payments the same way will require some level of understanding of how online payment works before moving forward with online payment processing comfortably. Online payment processing involves secure communication using payment gateways between the point of transaction and the bank. Stored customer data is validated through secure online systems, then payment is accepted. At that point, one account is debited, and the receiving account is credited in the amount set for the transaction.

Payment Process Example

There are various methods of online payment processes. Some even allow personal payment transactions between individuals. Examples of online payment processes include using bank cards such as Visa, American Express, or Mastercard. In this case, the bank card number is used to process payment through a secure portal. Another example of payment process involves using an eWallet service such as PayPal, Google pay, Amazon Pay, or Apple Pay. E wallets are typically linked directly to bank accounts and debited when a purchase is made. Other payment processing examples include money transfers, direct debits, and cryptocurrency. Most of these online payment process examples are used for consumer transactions in B2C business situations. So what about the B2B online payment process?

Different payment methods for business transactions include credit cards, ACH (automated clearing house) payments, wire transfers, PayPal, paper checks, and cash. These online payment options are commonly accepted among businesses. A challenge for AP departments is processing payments using different methods outside of a streamlined system that can help keep track of all transactions no matter how they were processed. This is why a payment solution like AvidXchange is an excellent option for companies to simplify the payment process, increase efficiency and decrease the margin of error in their payment process flow.

Payment Processing Industry

A payments industry overview starts with a payment processor. The term payment processor refers to a payment facilitator. The payment facilitator operates as a middleman, or mediator, between a financial institution and a merchant. The payment processor authorizes transactions and then expedites the transfer of funds. Popular payment processing providers include Shopify and Square. The payment processing industry is experiencing rapid growth, as online payment is becoming the preferred method to send and receive payments.

The pandemic accelerated the growth of the payment processing industry for all sectors of payment processing peer-to-peer (P2P), business-to-customer (B2C), and business-to-business (B2B). Analog payments were the norm before the rapid development of the payment processing industry. Banks would use physical cash or checks to accept a payment method and then enter it into a digital payment record. Part of the process was digitized, but the front end of the process, the payment, was physical. Now, most transactions are digitized from start to finish using various preferred payment methods. The challenge for the payment processing industry is providing multi-channel solutions that allow transaction flows that satisfy everyone’s preferences.

As you can see, digitizing payment processes and numerous preferred payment methods can result in complex invoicing and payment processing for accounts payable departments in B2B settings. AvidXchange is an excellent choice for middle-market companies that need help managing these complex processes—offering tools to streamline AP processes and simplify payment processing.

Payment Processing Business

A company that manages transactions, sending and receiving payments between two parties. A payment processing business sends communication, relaying information between financial institutions. Payment processing software programs use the data involved in payment methods such as credit or bank accounts or other online payment processing options to credit money to a bank account using an automated process. In addition, online payment processing software programs have security measures to help prevent fraud, among many other features to help payment processing for small businesses.

Payment processing software companies help businesses complete transactions between the customer and the business. Regardless of business type, business-to-business (B2B) or business-to-customer (B2C), payments must be processed through a secure, trackable process. Payment processing for small businesses involves several points of contact.

  1. The company or customer required to pay (the payer).
  2. The business/merchant receiving the payment.
  3. The payment processor.
  4. The payment gateway (sometimes included with the payment processor).
  5. The bank or credit card company sending the payment.
  6. The bank receiving the payment.

Online payment processing for small businesses includes these steps and in-house accounts payable processes. Keeping track of each transaction manually leaves a larger room for error, a greater risk for fraud, and is generally not efficient. Payment processing software companies offer solutions to simplify accounts payable from invoices through payment processing. In addition, online payment processing software for small businesses maximizes efficiency and reduces costly errors.

Payment Processing Software

The best payment processing software will have a clean, attractive interface and a user-friendly dashboard feature that is free from off-topic distractions. Payment processing platforms should offer some level of support and be usable with a minimal learning curve. Usability is critical as accounts payable departments must continue their current workflow while implementing payment processing software. Easy integrations with existing accounting software and other tools are non-negotiable when choosing payment processing software.

Payment management software and payment processing software are different in that payment processing software does not necessarily manage payment. Payment management includes automated payment processes, including invoicing and payment collection.

AvidXchange online bill payment software offers bill payment automation. You can handle all bill payments online with the cloud-based Avidxchange payment processing platform. Featuring a supplier-focused approach designed to help you maximize your time, reduce fraud and focus on your business instead of worrying about your bills. Simple and convenient payment processing software perfect for middle-market companies’ AP teams. Streamlining complex invoicing processes will speed up approvals and help you make your payments on time, every time. AvidXchange bill payment software is the best way to pay bills online.

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