Accounts Payable (AP) departments can play a crucial role in forging strategic alignment between suppliers and the business. They are responsible for payments within the contractual terms.

Automation of the master debt process allows for continuous efficiency. This includes the ability to speed up procurement cycles, capture greater savings, and negotiate favorable payment terms (optimize outstanding payment days) without squeezing cash for suppliers.

The right vendor’s AP automation tools can help organizations build strong relationships based on trust, transparency, and mutual benefits that impact the vendor relationship.

For businesses, the benefits include:

Unified view of suppliers

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In all organizations, supplier data can reside on different systems, and sometimes, vital information can even be found within spreadsheets on individual employee systems or in emails.

In companies with multiple lines of business, internal silos hinder cross-company execution and introduce inefficiencies into the supplier management process. For example, vendors could serve multiple departments without the knowledge of AP teams, minimizing their ability to negotiate better payment terms.

Automated AP processes with integrated supplier registration workflows can create a single and accurate system of registration that is accessible to all stakeholders within the company.

This allows companies to create a cross-functional baseline that includes:

  • Refer to preferred supplier lists for sourcing decisions
  • Eliminate duplication of spending across multiple locations
  • Review and negotiate better payment terms between vendors
  • Identifying suppliers that account for a greater percentage of business spending or deliver strategic value through superior performance and access to a specific resource at exceptional pricing opportunities.

Facilitate quick 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 instances where companies have adjusted payment times and terms to manage cash flows.

The Economist cites deferred payments as the top three cash-optimizing strategies companies adopt. However, this strategy has been a key tool in managing cash flows that can lead to disrupted supply chains, slower deliveries and extended time-to-market cycles. AP automation platforms that offer embedded financial products can mitigate liquidity constraints and facilitate the movement of money along the supply chain.

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Businesses, for example, can access instant credit card products to finance debts. 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 higher volume of early payment rebates, and reduce late fees.

Many AP automation vendors are partnering with third-party service providers to offer supply chain financing to ease cash flow constraints. The debt financing program allows suppliers to sell trade receivables to the buyer’s bank and receive a discounted value represented by outstanding invoices.

AP automation and integrated card providers are partnering with licensed banks and lenders to extend that convenience to mid-market businesses, leading to financing convenience and meeting liquidity needs.

Optimize your payment mix

Companies must constantly walk the tightrope between managing working capital and demanding timely payments from suppliers. Businesses can leverage a mix of tools to optimally manage cash and negotiate payment times.

For example, in a high interest rate environment, companies might choose to pay a higher volume of invoices using real-time tools such as UPI and IMPS, as it allows them to better accrue interest on existing cash buffers and just-in-time payments payments without having to change supplier payment terms.

Similarly, virtual cards that offer higher discounts can be used by businesses to make upfront payments to cement relationships with critical suppliers.

Build seamless engagement processes

Vendor enrollment requires compliance with a number of vendor KYCs and due diligence considerations. AP departments must reconcile these complex compliance requirements with vendor expectations for a smooth onboarding experience.

The right AP automation optimizes invoice processing time, accuracy, purchase order despatch notices, and invoices can be generated in minutes, reducing administrative costs for buyers and suppliers. More importantly, two-way and three-way correspondence between the purchase order, invoice, and 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. Built-in analytics can help AP teams track critical metrics that impact the vendor management process. This includes:

  • Compliance with contracts
  • Non-preferred vendor charges
  • Duplicates and overpayments
  • Time to process invoices for preferred and non-preferred vendors

Invoice approval and error rates

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Supplier relationship management involves a mutually beneficial relationship between the company and its suppliers. An effective accounts payable process is a crucial component in building trust and maximizing the value of supplier relationships. By investing in the right AP platform, businesses can find ways to manage cash flow, step up efforts to build resilient supply chains, and prepare to thrive in the future.

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