Accounts Payable (AP) departments can play a crucial role in forging strategic alignment between suppliers and the enterprise. They are responsible for payments within contracted time frames.
Automation of the core payables process enables continuous efficiency. This includes the ability to speed procurement cycles, capture greater savings and negotiate favorable payment terms (optimize days payable outstanding) without squeezing liquidity for suppliers.
AP automation tools from the right provider can help organizations build strong relationships based on trust, transparency, and mutual benefit impacting the supplier relationship.
For enterprises, the benefits include:
Unified View of Suppliers
Across organizations, supplier data can be resident across disparate systems and at times vital information may even rest within spreadsheets on individual employee systems or e-mails.
In firms with multiple lines of business, internal silos hinder cross-business execution and introduce inefficiencies in the supplier management process. For example, suppliers may be serving multiple departments without the knowledge of AP teams, minimizing their ability to negotiate better payment terms.
Automated AP processes with built-in supplier enrolment workflows can create a single and accurate system of record, accessible to all stakeholders across the business.
This allows businesses to create a cross-functional baseline which includes:
- Referencing preferred vendor lists for sourcing decisions
- Eliminating spend duplication across multiple locations
- Reviewing and negotiating better payment terms across suppliers
- Identifying vendors that represent a larger proportion of business spending or provide strategic value through superior performance, and access to a specific resource at exceptional pricing opportunities.
Facilitate Prompt Payments
On-time payments are the single most crucial factor in building resilient supply chains. With economic volatility and geopolitical tensions, there have been countless cases of companies adjusting payment timing and terms to manage cash flows.
The Economist cites deferred payments as the top three cash optimization strategies adopted by enterprises. However, this strategy has been a pivotal tool to manage cash flows which can lead to broken supply chains, slower deliveries, and prolonged time-to-market cycles. AP automation platforms offering embedded finance products can mitigate cash constraints and facilitate money movement across the supply chain.
Businesses for instance can access instant credit card products to finance payables. This instills trust, improves credibility, and helps businesses achieve preferred buyer status. Businesses can also earn 1%-2% on total AP spend in the form of cashback and rebates, capture a larger volume of early-payment discounts and reduce late fees.
Many AP automation providers are collaborating with third-party service providers to offer supply chain finance to ease cash flow constraints. The payables finance program enables suppliers to sell trade receivables to the buyer’s bank and receive a discounted value as represented by outstanding invoices.
AP automation and embedded card providers are collaborating with banks and authorized financing companies to extend such convenience to mid-market businesses leading to the convenience of funding and addressing liquidity needs.
Optimize Payments Mix
Businesses need to walk a constant tightrope between managing working capital and supplier demand for timely payments. Businesses can leverage a mix of instruments to optimally manage cash and negotiate payment timing.
For instance, in a high-interest rate environment businesses could opt to pay a larger volume of invoices using real-time instruments such as UPI and IMPS, as it allows them to improve interest earning on existing cash buffers and make just-in-time payments without having to alter supplier payment terms.
Likewise, virtual cards that offer higher rebates can be used by businesses to make early payments to cement relationships with critical suppliers.
Build Seamless Engagement Processes
Supplier enrolment necessitates compliance with a raft of supplier KYC and due diligence considerations. AP departments need to reconcile these complex compliance requirements with supplier expectations for a smooth onboarding experience.
The right AP automation optimizes invoice processing time, accuracy, Purchase orders shipping notices, and invoices that can be generated in a few minutes, reducing administrative overheads for buyers and suppliers. More importantly, two-way and three-way matching between the PO, invoice, and the goods received a note, reduces invoice-related disputes.
Suppliers also benefit from instant visibility into the status of payments and invoices in real time from one central location. Embedded analytics can help AP teams track critical metrics that have an impact on the supplier management process. This includes:
- Compliance with contracts
- Non-preferred supplier spends
- Duplicate and overpayments
- Time to process invoices for preferred and non-preferred suppliers
Invoice approval and error rates
Supplier relationship management involves a mutually beneficial relationship between the business and its vendors. An efficient accounts payable process is a crucial component for building trust and maximizing value from supplier relationships. By investing in the right AP platform, businesses can find ways to manage cash flow, strengthen efforts to build resilient supply chains, and set themselves up to prosper in the future.