Supplier account vs instant payment

Transaction speed in businesses is ever increasing. So much is now instant or nearly instant. Payments over the internet - whether by credit card or third party portals - allow almost immediate transfer of funds. Convenience is everything. But is convenience costing you more in the long term?

One of the things I see in business financial analysis is that the time cost of making and processing purchase transactions is all too often not thought about/ignored/considered unimportant. It is seen as an overhead for the back office.

This is a huge mistake.

two out of three ain't bad

There is a saying in the design industry that says of the three criteria of fast, cheap and quality you can only ever have two criteria at the same time. i.e.

• If you want something fast and cheap, it won't be of quality.
• If you want something of quality and cheap, it won't be fast (as it'll get put to the back of the pile).
• ​If you want something of quality and fast, it won't be cheap.

This thinking could easily apply to purchase transactions but using just the two criteria of convenience and cost. i.e.

• If you want convenience, it will end up costing more.
• If you want something cost efficient, it won't be as convenient.​

the real cost of convenience

I've worked in many businesses where the convenience of using online payments or credit or debit cards is the preferred option and, no doubt, when you need to buy something fast, you need to buy it fast.
​But you don't need to waste money to achieve it! 

Here are some places where the convenience is costing your business its cash.

Firstly, look at your bank account.
The per-transaction cost of using debit or EFTPOS cards can quickly mount up.
If you are not on a package that allows you to make multiple transactions for a fixed fee, get one quick! 

Secondly, look at your approval processes. 
The more people involved with approving transactions, the more expensive it gets.
If you have several staff creating instant purchase transactions, they are each responsible for processing the paperwork to support that transaction in your accounts. For each transaction, they'll need to get the invoice or receipt, they may need to allocate the costs according to your coding structures and they'll need to authorise that they made the purchase on behalf of the business.
To do that for a multiple transactions can take time - and most people dislike the tediousness of having to do the paperwork!
Not only is it costly in terms of their time, but also costly in terms of happiness and engagement of your staff.

If you then have a senior member of staff to review and approve the purchases, the cost of their increases the overall cost again, especially if the approver is paid a high rate.

Thirdly, look at your finance system processes.
If you use an accounting package with automatic bank feeds, you will get every single transaction coming through. Every single transaction needs to be checked and reconciled. 
And every single transaction takes up the time of your accounts person.

More transactions equal more cost.

a simple way to reduce costs

Traditional Cash Flow Cycle diagrams work on the basis that everyone uses supplier accounts but, in reality, the supplier account is becoming less prominent in business: 

• they take time to set up
• the forms require all sorts of information
• you are expected to provide all sorts of guarantees

But after the initial set up, the $$ benefits - and dare I say, convenience - of using them easily outweigh using processes for instant purchases.

1. Purchasing in store or online requires the same amount of actual time, you're just using a different method of payment
2. You get one invoice at the end of the month
3. Staff don't need to get individual receipts/invoices, making them happier and saving their valuable time
4. Approvers don't have to wade through screeds of paperwork to make their approvals, making them happier and saving their valuable time
5. Your finance staff have only one transaction to process, saving their valuable time 
6. You only have one bank transaction in your accounts
7. If you pay fees per transaction on your bank account, you only get charged once
8. Filing the supporting documentation is quicker and takes up less space (physical or virtual)

Don't forget or ignore the time cost of your staff in processing multiple transactions, even if it is thought they are more convenient. Just thinking it through can offer you the best of both worlds.

There are also gross margin and cashflow benefits, but that's a story for another time...