The Prime Time to Fix Your Accounts Payables Mess

It’s been a challenging year for the global economy. Europe, the US, and China are among the countries drifting toward economic downturns. In the US, inflation has been a major concern, led by rising food and gas prices. Interest rates are on the rise, and the stock market has seen significant declines. Supply chain disruptions continue, becoming more pronounced with the war in Ukraine.

Given this backdrop, is this the right time to find ways to make your finance team more efficient?

Absolutely. In fact, finance organizations should double down on their efforts to simplify accounts payable operations. When times are tough, efficiency and cost control are essential to competitiveness and business performance.

The AP Opportunity

When times are good, businesses tend to focus on growing their top line. A poorly functioning accounts payable process may go unnoticed.

When the economy slows, efficiency and cost control gain even more attention. And there’s no better business process to streamline than accounts payable.

Why? Because typical accounts payable departments have not yet fully embraced automation to improve their business processes. In addition, organizations that embrace automation have a more committed and engaged AP staff, less likely to pursue other opportunities that may come along.

Consider your organization. What is your volume of paper invoices, physical checks, or supplier payment status inquiries? If it’s a lot, that can drag down business performance and negatively impact your cash flow management and even working capital.

Whether your AP operations need a complete overhaul or just some fine-tuning depends upon the current state of your payables. Let’s look at some steps you can take to improve how your organization can better manage its payables.

Collaborate with Suppliers

To start, examine how you engage with your suppliers. If this is a manual paper-based process, the time and effort involved can be much greater than an automated process.

Consider these supplier-related tasks:

Capturing supplier data
Providing policies to suppliers and obtaining diversity information
Running supplier verification checks
Setting up payment details
Configuring an electronic catalog for ordering
Managing a large volume of transaction documents (i.e., purchase orders, invoices, goods receipts, and advance ship notices)

Dedicating resources to these activities won’t scale with you as your business grows, and you’ll struggle to manage the increasing demands on the payables process to support that growth. That’s where a supplier portal becomes valuable.

As a self-service tool, a supplier portal allows suppliers to upload and provide the information and onboarding documents needed for business commerce. Here is a partial list of the information that suppliers can self-provide through a portal:

Contact information
Business description
Bank account details
IRS and VAT tax IDs
W8, W9, and related tax forms
Product information and pricing
Certification details
Payment terms
Payment remittance format preference
Sustainability rating
References
Miscellaneous information (specific to industry or product category)

In addition to critical supplier information, you may also need to conduct reference checks and risk assessments. Risk assessments can include a broad range of checks involving strategic, operational, and business continuity risks, such as compliance and regulatory risk, information security risk, financial-credit risk, and reputation risk.

Finally, you will need to establish supplier performance indicators to track and evaluate supplier performance effectively.

This process can take many months. Furthermore, onboarding suppliers has grown more challenging due to the pandemic and global supply chain disruptions. Trying to find shortcuts and workarounds around these disruptions could sabotage your goal of developing a reliable and sustainable supply chain.

Automating the supplier enablement and onboarding process delivers a substantial return on investment. Studies have shown that a largely manual process can take hundreds of hours to onboard a single supplier vs. a few hours via an automated process.

You’ll reap a return on investment even if you only add a few dozen suppliers a year. For organizations onboarding hundreds of suppliers each year, automation may offer one of those most lucrative ROIs in all of finance.

Move to Electronic Payment

Once you have a reliable automated system for vetting and activating suppliers for business commerce, you can begin transacting with them and are ready to automate specific business processes.

A manual payment process has many moving parts and unnecessary overhead, from entering data across multiple bank and payment portals, determining payment terms, manually initiating payments, and managing currency conversions for global transactions, among other tasks. What’s more, you incur fees that vary by payment channel.

For a company like Zipline, an innovative logistics provider that services around 240 million people globally, automating payments was a valuable first step in simplifying their financial operations.

We wanted our operations to advance in new countries without the headache of payments. We needed to accommodate as many payment terms and currencies as possible—and we weren’t going to do that manually.

With a payables solution from Tipalti, Wong’s finance team reduced its global payment workload by 75%. With Tipalti, I am confident we can expand to new countries without having to add staff.
David Wong | Head of Finance, Zipline

If you have already automated some of your workload, you may want to consider modifying payment types to improve security and lower costs.

At Younique, a Utah-based direct-to-consumer beauty company, bank wire was the primary payment method for most foreign transactions. Today, Younique’s finance team has consolidated payment methods to more cost-effective options like ACH and eCheck. Foreign payments are made on a local subsidiary level without needing to set up additional bank accounts.

Younique also significantly improved its vendor onboarding and supplier management processes. With a self-service supplier portal, suppliers can directly provide Younique with their banking details and tax information. Now they can track their payments and reconcile receivables without contacting Younique’s support team.

The portal establishes a layer of trust for suppliers with complete visibility into payment status
Chris Hurst | Director of Accounting, Younique

Going Electronic with Invoice Processing

With the payment process effectively automated, the next logical next is to automate the invoice process. With electronic invoicing, finance organizations can take advantage of optical character recognition (OCR) and advanced data extraction technology, eliminating the need for manual data entry. This creates the potential for touchless invoice processing that speeds up approvals and virtually eliminates errors.

At Top Hat, a cloud-based education platform, invoice processing was plagued with delays. AP staff would print an invoice, enter data from the invoice into its NetSuite ERP system, print a check, then place the check in a pile with others to be signed by the CFO and CEO.

Today an automated payables process is not only embraced by Top Hat but by its customers, too.

We onboarded an author to the system, made the payment on time, and he actually sent a $400 top hat to our CFO
Nicholas Corradino | Senior Finance Analyst for Revenue Operations, Top Hat

The efficiency of electronic invoicing becomes more valuable when it can capture and process popular invoicing file formats, including JPEG and PDF files. The best solutions can also apply general ledger codes and automatically trigger preferred payment types by supplier.

By following this process, GoDigital Media Group was able to get 20 days back from its previous manual invoice process.

I’m spending more time structuring deals and really focusing on all the strategic aspects of helping the business. I’m freed from the administrative operative burden I had before.
Hunter Paletsas | CFO, GoDigital

Purchase Order Management

For many transactions, the ultimate goal of payables transformation is to link invoices with payment processing to an earlier stage involving a purchase order, known as PO matching. Procure-to-pay solutions do just that, enabling you to set up rules to determine if an invoice is PO-based and if it should go through a matching process.

On the front end, automation simplifies the generation and approval of purchase orders. On the back end, it enables a capability known as “PO flip,” where the purchase order is the basis for creating a clean invoice you can process straight through. PO data is transferred to the invoice (the “flip”), and the invoice can then move on to payment without further approvals.

You can also link invoices to related transaction documents such as advanced ship notices, goods receipts, and even contracts to further expedite processing.

To improve first-time match rates, especially for charges like freight, delivery, and taxes, you can set tolerance thresholds based on amounts or percentages. If an invoice fails to match but falls within the threshold, it can move on to payment without further review, bringing additional cost reductions.

New Potential for Cash Management

With your AP staff freed from tedious tasks such as data entry, pushing paper, and answering supplier inquiries, it can support the teams in treasury and finance to better manage cash on hand and working capital.

Two areas of opportunity involve DPO (Days Payable Outstanding) management and early payment discounts. For many organizations, there are no policies governing payment terms. In many cases, this results in faster than expected invoice payments. By dedicating more resources to help manage payment terms—extending them where feasible—you improve your company’s cash flow while conforming to an industry policy standard.

For suppliers looking to get paid sooner, you can offer early payment discounts as part of a payment terms extension program. These discounts lower the cost of goods and services while increasing your return on cash spent, as opposed to what you could earn from the bank on interest.

AP can assist in managing these programs by taking the lead in identifying early payment discount opportunities and communicating these offers to suppliers. Typically, no more than 20 percent of suppliers would opt for the discount, so you get the best of both worlds: the savings and cash return from the discounts and the net increase in DPO to improve cash flow.

The Time is Now

As your business grows, so does your business’s reliance on AP tasks ripe for automation.

By simplifying your payables operations and freeing up resources, you can:

Perform root cause analysis of problematic invoices
Enforce contract compliance
Monitor supplier performance
Identify early payment discounts and payment term extension opportunities
Support financial analysis, forecasting, and monthly/quarterly financial close
Hedge currency exchange risk

What are you waiting for? By automating repetitive manual tasks, you can shift resources from traditional paper processing to value-added tasks that will strengthen your business.