Unlocking the True Cost of Manual Payments | Dwolla

Businesses that haven’t optimized their payment operations don’t understand what it’s truly costing them. It’s a lot more than they might think.

In 2020, failed payments and poor payment operations cost the global economy $118.5 billion. On top of that, Accounts Payable personnel spend 30% of their time answering questions and tracking down information/documents, two tasks that represent only part of the burden of manual payment processes. By handling transactions the old-fashioned way in the age of digital innovation, companies waste a significant amount of time—and time, as we know, is money.

The modernization of payment systems also brings to light issues caused by manual payments. Unfortunately, many businesses are so focused on solving day-to-day payments issues that they fail to address the root cause of the problem. When you combine human effort hours and money lost to inefficient transaction methods, the numbers add up quickly, and those aren't the only ways manual payments are costing your business.

In this blog, we’ll share the problems you may not know are impacting your business and how the right payments automation solution can help.

6 Ways Manual Payments Impact Operations

Manual payments take a toll on your payment operations and, ultimately, the success of your business. However, since some of these costs aren’t evident in the bottom line, businesses often aren’t aware of their impact until it’s too late to take preventative measures.

The top six hidden costs your business could be facing because of manual payments are:

#1 Slow Processing

Manual payment operations often involve physical documents and manual data entry, leading to slower processing times compared to automated systems. This can delay initiating, approving and completing payment transactions. Slowdowns in accounts receivable can lead to inadequate cash flow and working capital constraints. Slow processing of accounts payable can strain vendor relationships and eventually create supply chain issues. Any payment processing slowdown can be detrimental to customer experience.

#2 Errors

Human errors also contribute to a slow payment cycle and increased costs. The more manual steps involved in a transaction, the more likely someone on your team will make a mistake. Plus, data entry and matching can be tedious and time-consuming, leading to longer processing times, higher labor costs and more mistakes. Payment processing typically has a 10% error margin, and correcting those errors requires exception handling processes and approvals. All of these rework steps take time, and at scale this time costs a lot of money.

#3 Failed Payments

Payment failure can occur for many reasons, including:

• Expired credit cards
• Incorrect payment details
• Insufficient funds
• Fraud detection

Manual payment processes exacerbate the impact of these issues, especially if multiple platforms are involved and they don’t communicate with each other. Invoicing might be separate from approvals, which might be separate from payment initiation. The person interacting with these multiple systems likely won’t catch the issue until the middle of the payment process. At that point, time and effort has been wasted on the failed payment, and the person trying to process it will have to devote even more time to figuring out what the issue is, solving it and reprocessing the payment.

#4 Direct and Indirect Costs

Processing payments manually can result in direct expenses, including:

• Supplies: Paper, envelopes, ink and postage add up over time.
• Wages: Employees must spend time printing invoices, preparing checks and mailing payments. Most transactions are easy to execute, but manually matching the invoice number, issuing a purchase order after invoice approval and collecting signatures can be tedious and time-consuming.

Additionally, consider the indirect costs of manual payments, such as:

• Time: The time spent on manual payments could be applied to other areas of payment operations, like finding ways to increase efficiency and productivity.
• Opportunity: Companies that use manual payments may lose out on business and strategic partnerships or other opportunities to grow their business, knowing their current manual processes can’t handle increased volumes.
• Reputation: While you can track the amount of time it takes to correct mistakes and the related costs, many companies neglect to track the negative reputational impacts. Painful manual processes and common incidences of payment errors can contribute to negative public opinion and bad reviews.

#5 Employee and Customer Churn

The constant grind of managing manual payments can get old for your employees, sometimes resulting in voluntary churn from your team. Manual payments can also take 6-10 days to process, affecting business cash flow and leading to churn from your customers. Automating your payment operations reduces the number of repetitive tasks left for employees, streamlines the process to save more time and effort, and speeds up the payment process to increase cash flow and customer satisfaction.

#6 Inadequate Payment Security

The vulnerability to fraud is higher in manual payments because manual data entry and paper create more opportunities to tamper with payments and the limited audit trail makes it harder to trace. Without real-time monitoring and automated fraud detection mechanisms, businesses are more exposed to fraudulent activities that may remain undetected for extended periods. Lack of timely intervention can lead to substantial losses and compromise the security of payment systems.

Furthermore, manual payment operations often involve the use of physical documents like paper checks or invoices. Documents can be lost, mishandled or accessed by unauthorized individuals, increasing the likelihood of data breaches and compromising payment security.

5 Ways a Payments API Can Help

Investing in a payments solution like a payments API, even with a monthly cost, is often far more affordable than the numerous costs associated with manual payments. A payments API can help prevent costly outcomes from human errors, slow payments and poor security measures. The features of such payments solutions make them an ideal option for all businesses.

A business can take advantage of the following benefits by using a payments solution like Dwolla:

#1 Efficiency

Any payments API that can streamline the transaction process will improve your efficiency. Modern solutions can simplify operational tasks, reducing the time spent processing transactions from days or weeks to a matter of hours. Allowing a payments solution to manage and automate your payments will make your business run more smoothly and increase productivity and overall business performance.

#2 Reducing Employee and Administrative Costs

A payments API that doesn’t require manual intervention saves time and money spent on payment processing tasks and employee training. It also gives employees a break from tedious manual processes, which can increase employee satisfaction and retention. Eliminating the need for paper invoices, receipts and checks can save your business money on bank fees and printing, postage and secure disposal costs.

#3 Increase Compliance

Using payments solutions for digital transactions enables businesses to meet industry standards and adhere to best practices. Automated solutions can be configured with built-in controls to help businesses comply with regulations. For example, a system could require two-factor authentication for all payments or automatically reject payments that do not meet certain criteria.

It also simplifies internal compliance procedures and audits. Electronic records can easily be scanned for errors and cross-checked with other documents like requisitions and invoices, and system reports can show all payments made, to whom they were made and the dates on which they were made.

#4 Scalability

Payments become one less thing you have to worry about during your business expansion. Scalable payment solutions can help businesses achieve new growth without sacrificing quality because they can adapt to handle increased transaction volumes and more complex payment processes. For example, Dwolla’s scalable infrastructure and payment API allow businesses to manage up to 5,000 transactions at once in only a few clicks.

#5 Fraud Reduction

Payments APIs provide enhanced security measures and real-time transaction monitoring capabilities. These APIs are able to limit the number of times sensitive customer and account information has to be sent back and forth by using tokenization to prevent unauthorized access. By eliminating the need for paper checks, invoices and receipts, they also limit the chance of unauthorized access to or loss of physical records with sensitive information on them.

Additionally, such APIs typically provide real-time payment status information and notifications. Up-to-date payment statuses give you visibility into each individual payment as it processes, while real-time webhooks proactively notify you about changes in payment status (including returns). Both these features allow you to identify problems and react to fraud quickly. For higher levels of monitoring, you can integrate the payments API with your current fraud monitoring and prevention systems to detect unusual patterns or discrepancies and swiftly identify and prevent fraudulent activities.