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The payables process; procurement to pay

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The payables process; procurement to pay

Playbook Intro

The payables process is likely to be the first thing you need to get sorted

Founders tend to have the revenue sussed - or the business would have already failed! And they also tend to prioritise payroll - or they wouldn’t have their team turning up every day. But, because it is relatively easy to get a company credit card and pay bills online, a Founder can easily purchase what they need and run their business paying bills as they come in without having a well-thought-through payables process.

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But that isn’t sustainable and as the incoming Finance function, you need to quickly get a handle on cash and ensuring that the company spend is appropriate and well managed so that the business doesn’t

run out of cash or

become the victim of a scam

The payables process is the process that starts with the decision to purchase something and ends with that purchase being paid for.

In this playbook we will run through the design of the payables process and discuss the common questions that occur along the way.

Check out the Capstone projects related to Payables

These projects are designed to take 6-8 hours and will guide you through a real-life scenario and lead you to a solution. You will have access to demo environments in real software.

Thinking through the payables process workflow

Section Intro: Does any of this sound familiar?

I joined a start-up where this was happening:

There were 3 ways of submitting expenses; Zoho expenses plug-in, Xero expenses, send an email to one of 4 finance email addresses with random attachments and then the finance team had to guess if these were supplier bills or expenses for reimbursements

There were no assigned approver for Xero expenses and so the team were chasing through slack and expenses ended up being re-submitted through another channel

Approved Zoho expenses went to Xero, then to ApprovalMax for approval (again), then BACK TO Xero again as approved and then finally made it into the Bills to Pay queue

The CEO ended up needing a second approver on every one of their own expenses

And everyone was spending far too much time approving, reviewing, being notified, chasing to get anything paid

Agnes, FinOps Manager

The above case study demonstrates the impact of a bad workflow. When the Finance function works in it’s own silo without considering the impact then the operations of the business can be quickly impacted.

We know that it is tempting to just go and Google your problem and seek a software solution (preferably one with a low monthly cost...) but the first thing to do is map out the process as it currently stands, pin-point the problem areas and then re-design the workflow. This will then show you where you need process changes and where a software solution could help.

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We have a whole other playbook on Building Finance Processes which we recommend reading alongside this one

So let’s start thinking through the payables process workflow

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Buying something quickly gets complicated when you start to really break it down and start to write out the workflow.

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Start by thinking about the different types of cost you have in the business. These can broadly be categorised as:

Types of cost

Goods - tangible objects

Services - SaaS, Contractor time, Utilities and Rent

Staff costs - Salaries and on-costs (NI, Pensions and other discretionary benefits)

There are no rows in this table

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Let’s set staff costs aside for now as employment contracts and salary payments fall into a different workflow. See [link to Payroll module]

Now think of the different ways that you can buy those goods and services:

Ways to buy

Search for and order it online and wait for it to arrive

Buy it in a real-life shop 🤯

Agree a service contract with a company or individual and sign up to terms

There are no rows in this table

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Then, think of the different ways that you can pay for it:

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Credit card

PayPal

Buy Now Pay Later (BNPL)

Personal expense reimbursed by employer via an [expense management app]

Direct Debit

Purchase order and invoice on credit terms

So, we have different types of cost, which can be purchased and paid for in different ways; you quite quickly end up with quite a matrix of factors to sift through. Take into account the fact that online payments and cyber security risks are faced by all entities and you’ve got all the ingredients for a right mess, if you don’t have a good workflow design.

See the Building Finance Processes Playbook for a detailed look into one of the key FinOps skills - analysing and creating great workflows

Template Payables workflow diagrams

Here we have sketched out the workflows for a few different common purchasing scenarios

Try reading the scenarios and sketching out your own diagrams before looking at ours 😉

Example workflow: purchasing with company credit card

Scenario:

The product team purchase a second hand i-phone online for product testing. They pay using the company credit card

Workflow sketch:

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Workflow detail:

Event: Decision to purchase; product team decide they need an i-phone for testing

Payables workflow: no impact

Event: Order placed online and payment made by credit card

Payables workflow: transaction appears on credit card statement and in bank feed to finance software.

Event: i-phone arrives in the office and receipt is passed to finance

Payables workflow: Cost is booked to the P&L (or FAR depending on capitalisation threshold) and any VAT accounted for accordingly

Example workflow: purchase via contract with credit terms

Scenario:

The marketing team sign up to a contract with a PR agency with a fixed monthly retainer fee which will be billed monthly on 30 day credit terms

Workflow sketch:

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Workflow detail:

Event: Decision to purchase; marketing team decide on the need to engage a PR agency

Payables workflow: no impact

Event: Contract signed

Payables workflow: recurring, monthly purchase order raised for the monthly fixed fee amount

Event: first month passes

Payables workflow: Cost is booked to the P&L (accrued if the invoice is not yet received)

Event: first invoice received

Payables workflow: Invoice is posted in the finance system and a payables balance is posted to the PR agency’s supplier ledger

Event: first invoice paid

Payables workflow: Cash leaves bank and the balance on the PR agency’s supplier ledger is cleared to nil

Example workflow: employee expense claim for mileage

Scenario:

A Sales Team employee incurs mileage related to a visit to a customer site and submits an expense claim for reimbursement through an expense management app

Workflow sketch:

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Workflow detail:

Event: Decision to purchase; Sales Team decides on need to visit customer site and mileage is incurred on the journey

Payables workflow: no impact

Event: Expense management app wallet is topped up

Payables workflow: Cash leaves the bank and is transferred to the expense management app wallet

Event: Employee submits expense claim by uploading receipt

Payables workflow: Cost is booked to the P&L and cash leaves the expense management wallet

Case study: Re-designing the payables workflow for a high growth startup and selecting a software tool

Problems faced:

Manual and time consuming payment upload in SVB online banking

Lack of internal controls

Approval process not working for the Founder

Ideal outcome:

Streamlined process

Self-service payments

Better controls and approval workflow

Lower risk of manual error

Spend management

Solution: Implemented Pleo Bills

Benefits ✅

End-to-end AP process: from bill upload to payment in one platform

Very good OCR functionality

Reads bank details automatically and creates vendors within Pleo

Spend management: wallet can be topped up manually (e.g. transfer exact amount of pay run) or standing order

Team can see what is overdue clearly and schedule payments for bills without finance interaction

Potential Drawbacks ❌

Non-GBP payments are possible but more costly than Wise

Currently no batch payments functionality

Need actual invoices so can’t make ad hoc payments or payroll payments currently

Still need Dext to process receipts for DDs etc

Only admins can edit bank details not bookkeepers (this could also be a benefit...)

Harriet, Financial Controller and Quantico Alumni

Common problems and how to solve them

It always helps to know that someone else is facing the same problem as you! Here are a bunch of common problems that we have seen play out in many start-ups.

Here we set out the common problems, and their solutions, by the stage of your business

Read “The Payables Process in Detail” section below for more insights

See our article here on how to select software that works for your business

Common Problems in early stage start-ups

Early stage start-up

<10 people Culture: Wants to maintain employee independence

Common problem: I don’t know who has the company credit card at any given point in time

- ah ‘eck, you don’t all fit round one shared desk anymore - how do you know who’s buying what?

A common problem in high growth start-ups; 3-5 of you were sat round one desk passing round a credit card to make small purchases and sign up for new SaaS tools but the team has grown and that approach doesn't feel too sensible anymore.

Solutions:

- Use Virtual Cards

- Get a a starter-level expense management solution like the Pleo starter package

- Try Cledara for subscription management

Using a password manager and virtual cards will mean that the team don’t lose independence but there is suddenly a far greater level of control and visibility over spend.

Common problem: I don’t recognise transactions on my bank statement and I have no receipts

🗺️ Real world example

Honestly - when I joined my first start-up, there was a shoebox of receipts on a shelf that an external bookkeeper (hilariously called Mr McMonies) would come and empty into a bag each week and then email a P&L across each month. There was no real-time visibility of spend other than the Founder logging in to check the bank balance each day.

Sophie, Head of Finance, ecommerce startup

This happens a lot when you have a shared credit card meaning that others in the team can make purchases without finance being aware. You then end up doing a lot of chasing at the end of the month to try and locate receipts and figure out which cost line/budget line to allocate against.

Solutions:

- Get a a starter-level expense management solution like the Pleo starter package

- Try Cledara for subscription management

Using a starter-level expense management solution with in-app receipt capture will encourage teams to log receipts at the point of purchase.

Common problem: The Founder/CEO is a bottleneck

🗺️ Real world example

When I joined a Health Saas business their payments process was the classic:

Invoice received >> sent to founder >> founder pays manually one by one via bank

This meant that we had loads of missed payments, unreconciled transactions etc.

I came in and set up a process of:

Receiving invoices to a finance@ email address >> sent to Dext >> add payments in Xero >> paid in line with credit terms via Telleroo >> founder would approve the batch

This meant that we had a managed process that freed up so much more of the founders time as they could review a batch rather review individually and we also now had an approval flow built in for extra control

Aaron, FinOps Manager

Probably a combination of the above; increase in team, projects and spend, as a Founder, if you are still the approver of all spend (usually done at the point of setting up those payments in online banking - if you are still doing this refer to here for how to work 10x faster...) then you are probably causing a bottleneck in your workflows.

Solutions:

- Remove the need to make payments in online banking: Implement Telleroo or Nook

With an approval flow upstream of the bank payments, you can be sure that what ends up in the payrun is already approved and you can just click to pay.

Swap online banking for a payment tool and remove the reliance on the Founder making all payments

Common problem: Bookkeeping is very manual and time consuming

Solutions:

Use OCR technology and a payment tool to automate the manual tasks

Common Problems in growing start-ups

Growing Start-up 10-20 people Culture: The team are empowered, and responsibility is passed down to encourage a unified approach to spend management

Common problem: Approvals are being done in a back and forth email thread (or even on paper)

It’s great that approvals are being taken seriously within the team but it can really increase the email traffic into the inboxes of the Founder and senior team if there are lots of threads back and forth. It also poses the risk that something will get lost in an individual’s inbox

Solutions:

Use a tool like ApprovalMax to streamline the approval flow. See below section on Approval workflows and other tools that can help

Common problem: The volume of purchases is increasing fast and it feels out of control

Whoa - we are growing and there are so many purchases being made across the business

A common problem in high growth startups; suddenly there are a lot of you and a lot of projects, all spending against budgets. When volumes are high, it is tempting to get things paid quickly and, without someone approving the spend, there is an opportunity for the wrong people to be paid.

Solutions:

- Get an expense management solution like the Pleo Standard package

You will need a Director to sign up for the account as they need to satisfy KYC procedures

How much? It is free for up to 3 users on their Starter package and a low value monthly cost for their Essentials package which has additional functionality such as setting spending limits per user and an ability to manage subscriptions centrally

Common problem: We have a lot of cash in the bank but need to make sure we don’t spend it too fast

- you have funding - now don’t spend it all at once

Congratulations! Now your funding round is complete and your cash balance is looking healthy, you need to ensure that the cash is only being spent as intended.

Solutions:

- Use a tool like ApprovalMax to streamline the approval flow. See below section on Approval workflows and other tools that can help

An approval flow upstream of the bank will ensure that only approved bills get paid out in each payment run.

Common problem: Paying payroll used to take seconds. But now with so many employees and new joiners it’s taking forever.

See our Upgrading HR/Payroll Playbook for an in-depth look at the employee side of the business

Solutions:

Use tools to bulk upload payments; bring payroll in-house; implement payroll software such as PayFit or Pento

Common problems in businesses that have inventory

We have inventory! Culture: Working capital preservation is key

Common problem: The volume of purchases is increasing fast and we need to ensure working capital is well managed

If you have inventory then you will need a PO process right from the off - in fact, your suppliers will likely insist on it - they won’t accept an order without a PO number because from their side they don’t want to ship goods which are then disputed upon delivery. This is an area still ripe for automation; imagine if all inventory suppliers and customers used one global system for placing, and receiving goods... 🤯- Nook have a vision for this and we’ll see what comes out of the ecosystem soon...

Solutions:

- Implement a PO process

- Xero has a PO process and the Xero app store has recommended plug-ins

- If you are at scale, consider whether Xero is still right for you

- Look at something like Tipalti for managing the whole Accounts Payable Flow

- Speak to the team at Codat to see if there is a bespoke solution which could work for you

Common problems in larger organisations

Enterprise >100 people Culture: Full Budgeting process with designated Budget Holders

Common problem: We now have Budget Holders and they need good information

You’ve allocated department heads and given them a budget that you want them to be responsible for

These new budget holders need visibility of everything that is being spent from their budget. Making an approval flow where they approve/sign-off all requested spend from their budget will keep them accountable.

Solutions:

Implement a spend management solution such as Spendesk

Capstone

Check out the Capstone projects related to Payables HERE

These projects are designed to take 6-8 hours and will guide you through a real-life scenario and lead you to a solution. You will have access to demo environments in real software.

The payables process in detail

Section Intro:

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So now we understand the workflows that we need to design for, let’s get into the detail of how to make all this happen, and how to make it happen the FinOps way - so that your team don’t need to do any manual tasks and the rest of the business get on board with what you need them to do.

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Where do bills/invoices come from?

If you buy something on credit terms then you will be sent an invoice to pay at a later date

Suppliers usually send you invoices by:

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emailing them to you as an attachment

emailing you a link to click on

sometimes you have to log in and find them (eg your Google Adwords, Facebook Ads or Stripe billing account)

How do bills/invoices get into my finance system?

Without a FinOps workflow

When you get a bill/invoice you type the data into your finance system yourself. To do this:

Open a blank bill

Type the data into all the required fields, copying it from the supplier’s bill

Hit Post

For further step-by-step guidance use the

Xero Central Learning pages⁠

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But we’re here to talk about FinOps, and in FinOps we don’t want to have any manual data entry because

It’s boring, and

there is a risk of human error - someone mis-types the entry, and then your input data is wrong and future reports, information and decisions will be incorrect

The FinOps solution: use the power of optical character recognition (OCR) to do it for you.

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Use OCR technology to read your incoming bills, and draft the entries in your finance system so that your Accounts Payable team can work by exception rather than letting the accounts inbox manage them

Do I need to add my supplier’s details into my finance system?

Yes. To be able to track who you owe and when you need to pay them, you need to keep a separate ledger for each supplier which has their business details recorded, alongside all the invoice data from the bills that they send you

Note, when you use a new supplier for the first time, you’ll need to capture important details to ensure that you are able to actually pay them:

Company address

VAT status

bank details!!!

Once you have entered these into your finance system once, every subsequent payment can be automated.

What is OCR?

Optical character recognition (OCR) is the technology that allows computers to read numbers and text from pdfs and images and convert them into structured data fields.

In reality many of the tools we feature below use a combination of OCR and human review (the OCR software companies employ people to check what OCR has read and converted) to get the data you need.

💡Insight

WIth OCR there is reduced risk of transposition errors - each invoice has likely been OCR’d and potentially had 4 eye review so much more likely that any mistakes are picked up. Also applies to payment dates, VAT codes etc.

Ben, FinOps Manager, Quantico

How do I use OCR?

The two most common ways to use an OCR tool are:

batch upload pdfs

set up an inbox that’s linked to your OCR tool

This makes it easier to group up invoices and push them through on a frequency that makes sense for you, like once a day or once a week, rather than doing them one by one when they come in.

The tool will read all the data in the pdf invoices, and will let you know where it’s failed. At that point you login and check for yourself the fields its picked up.

You’re going to want to make sure you check:

the tax rate

the supplier name

the payment date

When you’re happy you can submit it and just like magic its in your finance system.

Example workflow: using an OCR tool to input invoice details

Scenario

Sketch out the workflow for an invoice that is received into a group inbox, forwarded to Dext and pushed to Xero

Workflow sketch

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Workflow detail

email received

email forwarded to group inbox

email forwarded to Dext inbox [note you can use tagging to auto forward and save a few clicks]

OCR picks up field data and is checked in Dext

Populated fields are pushed through to Xero

Finance team review draft in Xero and edit or Post

Case study: Clunky pay-run using online banking with Monzo

Previously:

Bills were sent to a finance@ inbox or to the founder who forwarded them to finance@

Use of dext for Xero upload

Paid weekly from Monzo bank account by Finance Manager and reconciled by Finance Associate because in Monzo banking it is hard to get multiple users access, so only the Finance Manager and Founder could set up payments

Reliant on the Founder remembering to copy us in for invoices to be paid.

New system implemented:

All invoices sent to finance@; removing a lot of traffic from the Founder inbox

Dext used as before

Pay runs sent from Xero to Telleroo based on due dates. These are then approved in Telleroo by the Founder and paid out.

Improvements seen: better approval process, wider access for finance team if someone is away as well as more comfort that all invoices are captured and paid.

Tom, FinOps Manager, Quantico

What OCR tools are out there?

Here is a summary of our current favourites

See our article on how to select software that works for your business

Stage of growth

Tool

Column 3

Notes

Start-up

Dext

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[previously ReceiptBank] market leader for small business and our preferred system for invoice management

Pleo Bills

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The new kid on the block. Pleo has been a widely used tool for expense management and has now branched in to Invoice management too

Nook

An even newer kid on the block, Nook promises to handle the processing (using OCR), approvals, and payments (using open banking to connect directly with your business bank account or through the Nook Wallet which you can top up) and even allows you to verify supplier bank details for extra security. Watch out for this one - we’re excited to see how they grow

Scale-up

Spendesk

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currently aimed at larger business, Spendesk describes itself as an all-in-one payment solutions. Like Nook it handles processing, approvals and payments via a “wallet” and also includes budget reporting. It has been designed to be used by the whole business so if you are looking for engagement in a tool across all your operations teams then do look into Spendesk.

Enterprise

Tipalti

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the “enterprise” level solution for the payables workflow (it integrates with Oracle Netsuite and Microsoft Dynamics, as well as Xero, Quickbooks, Sage and SAP). It does what all the others do but can also handle global payments (currencies) and multi-page invoices, including ecommerce invoices with multiple SKU purchases

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What should I do with receipts?

In the UK, you need keep your receipts for a number of years to adhere to HMRC requirements. There are no rules on how you must keep records so technically, you can keep them on paper - but in a digital world with online receipts and remote working, the best solution is to store them in a cloud software. The most common options are:

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But, if you are buying from an online account like Facebook Ads, Google Ads or Amazon then you will always have access to the receipts in your online billing account, so to save time, there is no reason to save them all individually into, effectively, a different part of the cloud - just leave them where they are

What is happening in the background in my finance system when I am posting all these invoices?

At this point, we think it is a good chance to step back and explain what your finance system is doing with all this automated data capture and data entry

The change in accounting software over the last 10 years has been phenomenal. Xero and Quickbooks are both investing in prime-time TV marketing in the UK with a clear intention of promoting their user friendly interface to business owners and not just accountants.

Having a much more friendly interface makes accounting software more accessible but it also has the downside of hiding the inner workings of how the system actually works. If anything, it gives users an outsized confidence that they have done something correctly when actually they’ve made a fundamental mistake. For example, Xero gives you a big green tick and a message to when you post a manual journal, but did you post the correct values to the correct account code?

Knowing how to click a few buttons on a screen does not mean you know how the system works.

Once you have done the above steps and posted the bill into your finance system, the finance system does a few things in the background:

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It creates an entry against that suppliers’ ledger to show that:

- you owe that particular supplier

- you owe a particular amount to that supplier

- the amount is due to that supplier on a certain date

This then adds to your total accounts payable balance on your balance sheet where you can keep an eye on the total that you owe all of your suppliers

The list of all suppliers and the amount that you owe to each forms your Accounts Payable Ledger

It adds the amount (net of any VAT) to your total costs in your Profit & Loss Report

It posts a VAT entry to the VAT ledger

How do I pay my bills when I just have online banking?

Now that you have posted your bills/invoices, your finance system knows:

Who you owe

How much you owe

When it is due

Now, you can use the payments function in your finance system:

You select the bills that you want to play (tick box)

Click “make payment”

Select the bank account that you want to pay from

Now, at this point, without a FinOps workflow, you will need to login to your online banking to actually send the cash to your suppliers

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Export the csv file

Upload it to online banking

Learn more on

Xero Central⁠

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Remember - when you first set up those new suppliers, you entered their bank details into the finance system - these will be automatically exported into the csv for your bank to read so you don’t have to type them in again. Also a big help for preventing payment fraud

What's the smartest way to pay my bills?

The new cloud accounts software's such as Xero and QuickBooks make small payment runs easy but when you want to bring in further automation, more efficiency, and importantly, break the cycle of the Founder managing payments instead of the finance team then it’s time to bring in a new tool. You can select one of the OCR tools that also handles payments or, a great option for start-ups who also want to implement some approval flows is to use the Telleroo payment tool

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Case study; over-complicated approval and payment workflow, simplified using Telleroo and ApprovalMax

Problem:

All Bills to Pay in Xero were manually exported to Excel where vlookups were used to match bank details of vendors to manually create a BACs file, and yes, there were multiple vendors with the same name and different bank details

The BACs csv was posted in the management slack channel for approval (managers who shouldn't see could see everything...) so that a minimum of 2 people could approve the csv. The csv was then imported to Revolut where ANOTHER APPROVAL from 2 people was required to release the money

Solution:

- Implemented Telleroo

- Set appropriate appropriate approvsal limits

- Used ApprovalMax for Bills in Xero; send notifications to designated approvers

- Set up auto-approvals in Approval Max for recurring spend (signed contracts)

Agnes, FinOps Manager, Quantico

Should we use Purchase Orders?

Now this is an interesting question... for a seamless and efficient workflow for the finance team then we would want POs in place for everything all the time; it would mean that all incoming invoices could be auto-matched and auto-posted with very little management form your AP team. But this is one of those that really depends on the size and stage of your business and the culture that you want to embed.

See Common Problems and solutions section for a discussion around what is appropriate at what stage of business growth

How can I get some control over spending? - approval workflows

So you’ve got a great new payment system in place 🙌 and you’re saving hours a week working on payruns 💪

You’ve got so efficient at the payables process you’re now worried the team might spend all your money 💸

Founders are great at being involved and getting stuff done, but they don’t have unlimited time. As a business moves to a phase of growth you may find that payments are a pain point.

So how do you address this practically?

Well the FinOps way would be to set up approval systems in your payment software.

What is Approval?

Approval for startups is review of work before it’s completed. It’s a way to stop little mistakes and stop fraud.

Helping everyone sleep better.

What is segregation of duties (SoD)?

Assigning different roles to different team members. Software access should be limited to those that need it.

By sharing responsibility around your team you can reduce the possibility that a single person makes mistakes or commits fraud.

How to set up an approval workflow

The key to running a successful high growth business is implementing processes that will scale.

There are many approaches to implementing an approval flow into your business to aid spend management.

Remember it’s not a one size fits all approach. Identifying the best workflows for your business is a key FinOps skill.

Here is our guide to setting up an approval workflow:

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Set an appropriate threshold below which you trust your team to spend wisely; eg under £100 the team have discretion on.

Note - this should be £100 total. If they want to sign up to an annual plan which costs £100 a month, then the total cost is £1,200 and should be subject to approval

Above that threshold, assign people in the business who can grant approval

To begin with, while transaction volumes are low, this may stay with the Founder

As volumes increase, assign Team Lead / Heads of to approve the spend related to their team

When you start to implement departments within your business structure, you can assign Budget Holders. These people are responsible for a set part of the overall company budget; their departments’ spend.

Establish a workflow

Simply, this is, all spend over £x (threshold) must be approved by Y (person in the business) before it can be submitted to accounts (ie posted into Xero)

You might want to consider a few different thresholds eg

£0 - £100 individual discretion

£100 - £10,000 Team Lead / Head of / Budget Holder approval

> £10k Founder approval

This means that once a bill is in the accounts system, you know it has been approved and it doesn’t need further review before it makes it’s way into the payment workflow

Implement a tool

The simplest, at low volumes, is an email trail - most invoices arrive by email and so can be forwarded to the appropriate person who can give approval in a reply email

This does increase email traffic and risks important bills being lost in a personal inbox

Our preferred way is to use a tool like

ApprovalMax⁠

- Software that lets you create an approval flow for you business. You can delegate authority to your employees. It works with Xero and Quickbooks and has

relatively low pricing⁠

compared to the headache that you will otherwise quickly end up with as you grow

If your team are regularly submitting mileage and other expense claims then take a look at something like

Pleo pocket⁠

. Staff submit their expenses via an app and you can select someone in the business to be responsible for review and approval (or rejection) of each claim before it is submitted for reimbursement.

When you want to combine approvals and payments then a great tool that we use a lot is Telleroo. It integrates with Xero so that you can create a payment run in Xero and send it to Telleroo in one click. Your approver will then receive a notification and they can review and approve directly in Telleroo. You keep Telleroo topped up with payments direct from your bank. You can also use Telleroo to make payroll payments.

Once you reach a certain size (c>20 employees) and want easy visibility of spend v Budget for all your budget holders, consider a solution like

Spendesk⁠

; an all-in-one spend management solution which includes approval workflows alongside expense management, budget v spend reporting, virtual cards and receipt capture.

See our article on how to select software that works for your business

What is a payment tool?

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A payment tool will help you pay an invoice, bill or expense.

Just like a bank, they’ll move funds from your account to your recipients.

However, they tend to specialise in solving a niche problem within this process: bulk payments (like Telleroo), international payments (like Wise)

💡Insight

Using payment software can also act as a financial control. Founders / senior management can control how much access to cash an authorised individual has and top up the software account on an ongoing basis rather than give access to the main account.

Ben, FinOps Manager, Quantico

What’s the difference between a bank and a payment tool?

Banking is highly regulated and so to be a ‘bank’ there is a LOT of stringent regulation. But, a simple payment tool, much less.

A banking license allows for holding of funds on behalf of others BUT banking licenses are tough things to get.

Luckily, the FCA give out e-Money licences, which allows for simple services like payments.

💡Insight

Ben Weaver, FinOps Manager, Quantico

Benefits of a payment tool over a bank for making payments:

Much easier to add / remove individuals to payment software. Banks can take weeks and process is often by post where as software can be instant. It can also be easier to remove any bad actors rather than be stuck on the phone / digging through menus on the bank website.

The UI/UX is generally better on payment software as it is newer / more agile compared to traditional banks. E.g. using tools like google authenticator app to authenticate vs using card and sentry reader which may not always be to hand, makes life much easier!

Ben, FinOps Manager, Quantico

How do most payment tools work?

Most payment tools require two things:

a way to hold funds; and

a way to transfer funds.

How do payment tools store money?

An e-money license allows payment tools to accept client money but (crucially) not manage it (like invest it on your behalf).

So they hold your money in an account (sometimes called ‘your wallet’) that you can top-up - you do this straight out of your business bank account.

💡 Pro tip: you can set up a Standing Order from your bank to top up ‘your wallet’ each month

So how does money get moved around?

There are a few ways of moving money around, which one you use will be determined by the speed you want to pay and how much it costs:

Faster payments - takes minutes

CHAPS - takes hours

BACS - takes days

A good rule of thumb: the faster the payment time, the more expensive the transaction.

What does Telleroo do?

Telleroo describes itself as “the hub for making instant payments and eliminating the copy and pasting in making payments”.

So, what does it do?

It links straight to your finance software - essentially it becomes an extension of your Xero functionality - you can set up pay runs and make payments really smoothly once you have a Xero<>Telleroo stack in place

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Let’s you assign separate creators and approvers for effective controls. You don’t even need one of those fiddly online banking security devices that seem to always get lost or stop functioning

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Creates one payment per supplier

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Flags to you when something potentially suspicious could have happened:

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Hide employee salaries from those who don’t need to know:

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💡 Insight

This new payroll feature is a great reduction in workflow for the finance team (no csv to download and upload), more secure (the csv doesn't sit in someone's downloads folder) and allows it to show as a batch payment in Xero so other finance users don't see all salaries

Sophie, FinOpsLead, Quantico

You can

sign up for Telleroo here -⁠

note - you will need the ID of a Director to use in the sign-up process to satisfy KYC

It genuinely is quick and easy to set up and get going, and get yourself out of tedious online banking

How to use Telleroo

We’re not going to try and do a better job than the Telleroo Founder and CEO himself, Andrew Cookson

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Here you can find a bunch of 2-3 minute videos⁠

from Andrew explaining how to use the Telleroo features

Should I batch payments?

Yes, generally it’s better to pay bills altogether in payment runs

This means you can set a regular day and time each week for a weekly pay run; much more efficient than making ad-hoc payments randomly through your day

and ideally, you don’t want to have to log in to clunky online banking

We solve for this using a payment tool such as Telleroo

💡Insight

Batching payment helps to reduced costs by consolidating multiple invoice amounts into one payment, particularly beneficial for non-UK transactions with SWIFT fees.

Ben, FinOps Manager, Quantico

Example workflow: Telleroo batch payment from Xero

Scenario:

Sketch out the workflow for paying your invoices that are in Xero and due for payment, paying using Telleroo

Workflow sketch:

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Workflow detail:

Select bills to pay in Xero

Send data to Telleroo

click make payment in Xero

select Telleroo as the payment bank

invoice and supplier data (inc bank details) are sent from Xero to Telleroo

bill is marked as paid in Xero; Supplier Ledger and Accounts Payable ledgers are updated

Telleroo performs automatic checks and flags if this is a new payee, a new name, new bank details)

Top up Telleroo with a single transfer from your bank

Approver receives a notification, logs into Telleroo to review and approve the payment run

💡Insight

The process of authorised individuals asking for funds to be added to payment software accounts helps bring attention to cashflow out. A founder may not notice making lots of little payments all the time, but being asked to transfer larger amounts of cash each week can focus the mind!

Ben, FinOps Manager, Quantico

What is a bank feed?

So you’ve paid a supplier bill - great, one less bill that you owe

Now, you don’t want to be sitting typing in all the transactions from your bank statement

So if you haven’t already, you definitely need to set up a bank feed; this “feeds” your bank transaction data directly into your finance system

It is a very standard integration and most high street banks support it with a few clicks.

For more information, see the

Xero Central page on setting up Bank Feeds⁠

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The final piece - The bank rec

Great - your bank transaction data is automatically arriving in your finance system while you get on with the important things (like sleep)

There is one last step to make sure your data is up to date and you get accurate reports on which to base decisions on...

THE BANK REC

If you use the standard Xero pay run functionality, bills will be marked as paid but it is only when you reconcile all bank transactions that you actually update your cash balance in your Balance Sheet - pretty important for all those reports based on how much cash you have...

Our top tips:

Make the bank rec a regular (weekly) process

Use the Xero matching tool

setting up cost-coding rules to automate future recurring transactions (eg bank fees, monthly subscriptions)

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Here is the Xero Central page⁠

explaining the bank rec process In summary:

Bank reconciliation is the process to confirm that all the transactions in your bank accounts are recorded in your business accounting records.

The aim of bank reconciliation in Xero is to match each statement line in the bank account to an existing transaction in Xero, or create a transaction during the reconciliation process.

Employee expense policies

An expenses policy is a component of a successful business. For instance it helps management decide what expenditure is a priority and why.

The rules are clear for all employees and sets expectations eliminating grey areas. This also saves management time dealing with ad hoc expenses questions or having to make judgement calls. Staff can also find the answer for themselves freeing up time for management.

🔑 Keys to a successful expenses policy

An expenses policy should be bespoke to the Company but here are some suggestions on how to create a successful expenses policy:

Create clear categories and budgets.

Be fair. Consistency is key.

Keep it simple.

Update often.

Check the regulations!

What is BACS?

BACS is (mostly) indirect way to make a bulk payment.

Payment Service Providers (PSPs) take your cash and your payment file and process it on your behalf.

It’s old. And it’s slow... but 2.1 billion are made in the UK each year.

Input - day 1

Input day is the latest day a business user/bureau may submit a payment file to Bacs for a processing cycle. Payment files must be transmitted to Bacs between 07.00 and 22.30.

Processing - day 2

Files are delivered to the recipient PSPs which then process each payment.

Entry - day 3

Payments are simultaneously credited to the recipients' accounts and debited from your account.

What are Direct Debits?

Direct Debits (DD’s) are slightly different in that they are initiated by the recipient not the payee.

What does this mean? You let your supplier pull funds out of your account, rather than transferring it to them.

Direct Debits run on bank-to-bank infrastructure and so are cheap... but also slow (slower than faster payments and CHAPS).

There are specific Direct Debit tools like Go Cardless that specialise in payments via Direct Debit.

How do I complete an international payment?

How do international payments work?

There is no one unifying currency worldwide (the dollar tries its best) and as your startup grows you’ll want to complete transactions in different countries and different currencies.

Each country has it’s own banking system and these are regulated.

To make transfers overseas your bank will have to have a mechanism to transfer the money. The most common of which is the Swift network:

Swift runs by using a system of intermediary banks worldwide. Each account will have a Swift code and IBAN number.

Not all bank accounts will be part of the Swift network.

Due to the extra number of steps involved you will often incur an FX payment fee to cover the cost to the bank to transfer money overseas

What do I need to think about when making international payments?

There are some key questions to ask yourself when making international payments:

Can the receiving bank receive money in a foreign currency?

Is the country on a sanctions list?

Do I have international transfer details such as Swift code and IBAN?

What FX rate will I have to pay?

Is there a transaction fee?

Does my bank allow foreign currency transfers?

How do I make an international payment?

To complete a foreign currency transaction you will need to first check that your bank allows this. You can look online or ask them directly.

As an example a Starling business account will not allow receipts or payments in a foreign currency.

If your bank does allow foreign currency transactions you can set up a payment online through the banking portal.

Steps

Set up individual transaction or batch payment

If you have foreign currency accounts then pay in the foreign currency

With open banking input international bank details (this is where you’ll need Swift and IBAN)