In my experience buying wholesale, larger companies want wire transfers.
Wiring money is a fairly simple process, but you have to go to the bank, sit with the banker, hand over your information, the other companies wiring information etc.
Easy enough for a place like mine that does maybe a dozen a month.
A place like Wal-Mart or Target where they are literally dealing with thousands of vendors seems to open up a whole new can of worms.
Do they have a guy whose sole purpose is to go to the bank and wire money? Do they have a system set up to do it straight from headquarters? Do the vendors just automatically charge the accounts?
Most companies, even small ones, will just have someone sitting at a computer authorising payments. These days they will mostly be electronic transfers, but if for some reason that’s not feasible, the clerk will print a cheque and post it.
Corporate cash management and payment processes is a competitive environment that large banks compete to obtain from corporate clients. They offer many advanced services to meet the companies many varied needs.
The way the OP describes is very archaic and probably still exists for some small businesses, but better more efficient methods are available. Even in my own personal bank account using the bill pay feature offered by my bank, most of the payments made are done electronically by my bank, there is no check cut. They will cut a check and send to my vendors if that is the last resort.
With corporate cash management systems, most of them integrated between the bank and the companies accounts payable function. Electronic payments are the most common method.
I am a consultant for one of the largest companies in the world. They use the SAP Ariba system which is very common among mega-corps these days. It is built to facilitate business to business payments.
In reality, it isn’t quite that easy. Payments start with a quote or statement of work (SOW) from the vendor that has to be approved at multiple levels, the work gets done or the goods get delivered and then we release the payment. I don’t know how the transfer works behind the scenes but I am fairly certain that there is no meeting with bankers or wire transfers. There are whole teams of people that work on nothing but vendor payments (they watch them like a hawk) and I am sure companies like Wal-Mart and Target use similar practices.
We’re a small business (~ $10M/yr) and we accept/send wire transfers all the time and never leave the office. I can’t imagine why you would need to physically go anywhere.
I’m not even a business and I can do a single wire transfer by phone, and a recurring wire transfer by web page. People have pointed out that business to business transactions have a lot of more sophisticated ways to handle payments, but even as an individual without any special banking services I don’t need to go to a bank in-person to do a wire transfer. You may want to talk to your bank or find a new one if they’re requiring it.
I’m also surprised that you can’t just use an echeck for payment if you’re small enough that you don’t have a department for payments, would be interested to know why that isn’t in use if anyone knows.
Big organizations have systems set up where it is almost as easy as any other transaction. On-line gambling houses wire funds to millions of individual offshore clients, and some do it as a client service once a year for free, even modest amounts of money, like hundreds of dollars. I’ve had money wired to me that way, I just had to give them my bank routing information on the phone.
According to a friend whose company sells to Walmart and Staples, they solve that niggly question about payments by not actually paying anybody, at least not in full or right away. I told her of an ad for Trader Joe’s that explained that one of their methods to keep prices down was to pay fast (net 30, maybe even net 15 and all) and in cash. Her eyes grew wistful. TJ’s HQ isn’t close but parent corp Aldi is. Maybe she can work there.
There’s still a surprising number of checks used for vendor payments, although corporate credit cards also do a lot of the work for smaller vendors since almost everyone can take credit card payments.
Big company ERP systems have the processes automated so dedicated check printers (with MICR ink) spit out the checks in batches to be folded and stuck in windowed envelopes and run through an automated stamp metering machine. At least that was how it was done when I worked for generic Fortune 500 corporation. I currently work at a smaller organization that prints envelops in parallel with the checks that are manually stuffed and mailed.
Annoyingly common at the aforementioned generic Fortune 500 company. Especially when the Net 30 was stretched to Net 35 or 40 so the payment could be made in a different quarter. I wasn’t in the financial department and hated the called from vendors asking where their payment was; all I knew was invoice was sent to the bean counters and was out of my hands.
For the last part, it’s all files going hither and tither. Your SAP sends a file (in whichever format the bank wants it) to your bank, the bank sends another to each of the other banks involved, other files come back with the information that the payments have been sent and that they have been received.
Depending on location there may be government regulations on the file formats themselves; discussions on what file formats need to be used take up easily half the time of an Ariba implementation.
When you have one large company using vast amounts of services from another company,
sure they have individual invoices approved, but the invoices just get totalled up and they get payments for the lot once a week or once a month or something.
Due to cash flow crisis, the company that can’t pay the weekly tranche, and is threatened with being cut off ? Well they might go to the “overnight money market” and get an overnight loan… for a night or two…so the lendor pays the tranche, and then the borrower organises a more permanent line of credit to pay off the lendor and then then solve the cash flow crisis.
In what world is this true? In Australia I was able to do internet banking transfers to individuals or companies 10 years ago in 2007 and this was available to both small businesses and individuals as well as large corporations. And I could do payments both domestically and internationally (with a bigger fee of course). No visits to the bank needed apart from the initial setup of internet banking. Same in the UK. Surely you had the same capability in the US right?
Edit: wow I just checked and my bank in Australia had internet banking in 1997, so 20 years ago.
Like others, I’m puzzled. Even I, as a private individual, never physically go to the bank for a wire transfer. I do that from my computer.
I worked for several years in the accounting department in charge of validating and accounting for invoices in a large corporation, and nobody ever went to any bank.
Some companies, like the one I visited last year, have become so integrated with some of their suppliers that the whole process is *almost *fully automatic.
Orders are raised by a computer program that monitors usage (This is a manufacturer). Quality control is in the supplier’s facility so when goods are delivered they are simply scanned in and the invoice value is automatically transferred to the suppliers account within (I think) seven days. Exchange rate problems for suppliers outside the EU (some in the USA, China and Japan) have some effect, as do lead times, but nowhere near as much as one might suppose.
Compare this with my employer in the 80s, where the Financial Director would be presented with a stack of cheques to sign, and would stop signing when he reached the ban’s borrowing limit.
Once you get large and lucrative enough, you can dictate terms to suit you as well.
A company I used to work for had a standard purchase order payment term of “end of invoice month plus net 30 days”. So you submit your invoice on September 1st - my company was obligated to pay it by October 30th. Of course, same deal if you submitted it September 30th - payment by October 30th. This allowed my company (which was large and hugely attractive to provide goods and services for) to organise a single monthly ‘payment run’ which I am sure was handled by an automated clearing house, perhaps in conjunction or allied to payroll. I am sure the money for the allocated payment run was known a couple days in advance, and then was transferred out of the main body of cash the company held and into the clearing system at the latest possible time. all very neat for the mega-corp, very hard for our smaller vendors! I hated it, myself.
you could get an early payment run for urgent works but that was the exception, not the rule, and that was handled by an accountant and was no-doubt paid from some discretionary cash account held on tap just for that purpose. You did not try to get more than 250k on anything less than a 7 day term - you would be asking for trouble and a call from someone very senior.
anyway the thought of a large company rep going to the bank mystifies me. if anything, they come to you - to make their sales speech and offer their services.
My cousin started out doing accounts payable for a large company. She was laid off about 15 years ago and started her own accounting type business, he specialty was accounts payable and receiving. Her company now has about 100 clients ranging from a lady with a small hair salon up to a company that owns 9 auto dealerships. About a year ago she hired someone to design and implement software for her company, it was getting too expensive to use the software from other companies. Some of her clients want her to take on the tax part of their business too but that and payroll are two areas she does not want to deal with. She now has about 20 employees and is looking to add a couple more soon.
