Manual payments are any payment that requires a human contribution, whether that’s cash and change at the POS or checks and invoices at the office. These payments are more common among older generations, but digital payments have recently gained popularity. Regardless, manual processing comes with some serious challenges. Here are a few of them:
Human error
Manual payment systems require much human intervention and can be prone to error. These errors may lead to lost money or mismanagement of accounts payable, which can negatively affect your company. In addition, they can consume a lot of time and resources that could be better spent on other tasks. Fortunately, there are several solutions to reduce these errors and ensure your payments run smoothly. Manual systems, whether used to process cash or credit card payments, are prone to human error and can be expensive for your company. Establishing rules for your personnel to follow when handling consumer transactions is crucial if you want to prevent these errors. A system that can identify possible difficulties before they develop into larger issues is also beneficial. B2B payment gateway streamlines the payment process by automating numerous procedures, doing away with manual labor, and cutting down on mistakes. They help firms manage large numbers of transactions, which boosts operational effectiveness. It does away with the necessity for manual card payment processing, paper checks, or cash transactions. Automated mass business processes are more efficient and effective on a larger scale.
Time-consuming processes
Manual payments involve completing financial transactions without the use of electronic systems. It can include cash payments, checks, or other physical methods such as money orders. Despite the growing popularity of digital payment methods, manual payments have their place in certain situations. They can cater to a more traditional demographic or increase market reach by reaching customers who prefer in-person transactions or over the phone. A major challenge with a manual invoice processing system is that it can take time and effort. It can take hours or even days to enter an invoice into a finance or ERP system manually. It can save resources and make it easier to manage data security. Moreover, it can also lead to mistakes that result in late payments and unhappy suppliers.
Accounts payable teams are juggling many tasks, including invoice approvals and reconciliations. They must also manage T&E expenses, loan payments, and short-term liabilities. In addition, they must collaborate with purchasing departments and company suppliers. It makes manual data entry extremely inefficient and prone to errors. A simple misplaced decimal point or incorrect date can have costly repercussions for your business.
Manual processing might cause severe invoice payment delays. The process takes a lot of time, and the various steps in the invoice processing workflow require many human resources and documentation. Additionally, the invoices may arrive in different formats, making it difficult to track and monitor the status of an invoice.
Inaccuracy
Inaccuracy is one of the most significant challenges to manual accounting and accounts payable processes. When data is manually transferred between teams, departments and spreadsheets, inaccuracies become more prevalent due to a lack of a single source of truth. It can have serious consequences, such as displeasing customers, creating revenue leaks and even losing the ability to make critical business decisions. Invoices come in through various channels, including email, fax, snail mail or courier and need to be manually categorized and recorded. It is where the earliest errors are made and can impact the entire payment reconciliation process. Inaccuracy can occur when an incorrect code, invoice amount, or even a simple typo can be used. These errors can be expensive and have a detrimental knock-on effect on the rest of the business. These inaccuracies affect internal departments and the bottom line and can damage supplier relationships, lead to duplicate payments, and cost you money. For example, Alitalia Airlines lost $7.2 million in a year because of an uncorrected typo in a price list. This type of error is a reminder that data quality must be the top priority to avoid expensive mistakes and legal liabilities.
Risk of fraud
Inaccurate and outdated manual payment processes put businesses at risk for internal fraud. It is easy to forge signatures on checks, and a paper trail makes it relatively easy to intercept payments. This type of fraud is taking an outsized toll on companies, with the average corporate loss in 2022 amounting to $1 million or more. For example, a company may have a manual process for reconciling bank accounts and paying invoices. If a treasury professional is also the person who approves payments, this puts the organization at risk of mishandling a payment to a fraudulent supplier. The treasury professional may need to realize that the vendor has changed banks or that the new bank account number is different and may authorize a payment to the wrong vendor.
Another potential problem with manual invoice processing is duplicate payments. These can occur due to inconsistencies in manually entered supplier information, incorrect coding or other factors. When an exact payment is made, the payables system should red-flag the invoice and stop payment. However, ensuring this happens in a manual process can be difficult. These challenges can lead to inefficiencies and even damage a business’s reputation in the marketplace. As such, finance leaders need to recognize the risks of manual processes and embrace AP innovations that offer speed, transparency and analytics. A trusted partner can help them implement digital solutions that reliably automate AP payments and safeguard operations from external and internal fraud.
