In the Financial Supply Chain, What You Can See Can Help You

Following the latest recession, organizations faced increasing pressures to manage costs and optimize the processes of acquiring goods and services. This state of lean is now a permanent reality and, as a result, finance and treasury executives are looking to the financial supply chain for permanent solutions. They’ve seen the benefits that a tightly managed physical supply chain can deliver, and now they want to squeeze similar returns from the financial supply chain. They want to improve cash flow, replace checks with more efficient electronic payment methods, maximize early payment discounts, and optimize return on cash and working capital. By taking control of both spend and payment strategies to manage costs, and by utilizing the right mix of payment solutions, organizations can drive both operational and financial excellence.

Inefficient Payment Processes Undone

It’s not unusual for a company to have hundreds or even thousands of suppliers. Best practice, however, is leading companies to rationalize and consolidate their supplier base, better positioning themselves to negotiate favorable pricing and service levels – not to mention the administrative savings that come from managing a smaller supplier base. With the right mix of payment solutions, companies can capture the data and glean the intelligence they need to rationalize suppliers and manage their most strategic supplier relationships more effectively.

Today, paper checks remain one of the most common payment methods, in spite of the mountains of research proving that paper processes not only lack the visibility and the analytics of electronic systems, they consume more time, drive higher operational costs, are difficult to track and are easy targets for fraud. Electronic payments systems are safer, faster and less error-prone, and they have been shown to increase productivity and, ultimately, improve service levels. But moving to electronic payment methods alone isn’t enough to realize the true benefits of a financial supply chain. Companies must employ the right mix of payment programs to support the business needs.

Fishing for Savings

Consider the experience of a small business in the Pacific Northwest that manages a fleet of fishing vehicles. The company faced a cumbersome and labor-intensive spend and payment reimbursement process that included:

pre-funding fishermen to purchase supplies at the beginning of each season;

advancing money throughout the fishing season for extra supplies; and,

manually reconciling and settling with the crews when the season was over.

Running the business required reams and reams of paper invoices and yielded little to no insight into how well its spending was supporting its business objectives.

In 2010 the company implemented a procurement card (p-card) system, an electronic invoice presentment and payment (EIPP) system and an online reporting system. Subsequently, each purchase made with a p-card resulted in an electronic transaction record, giving the company’s controller the ability to capture spend and gain greater visibility into purchases in real time, and to generate analytical reports on spend volume with each vendor, while keeping the fleet of fishermen on the water and focused on the catch. In just one season, the p-card program reduced the number of invoices in the Accounts Payable department by 70 percent and eliminated 3,500 purchase orders and an estimated 14,000 pieces of paper.

That’s the power of a comprehensive, holistic approach to spend and payment. The fishing company embraced p-cards and gained real-time visibility into the business. The business owners were able to identify opportunities to reduce costs through redeployed headcount, increased process efficiency and even decreased printing and mailing costs. The company benefited from better cash flow, forecasting and risk management. And downstream, they significantly increased supplier satisfaction.

The Payment Mix: The Right Strategy for Your Business

The right mix of payment solutions can help organizations from small businesses to Fortune 100 organizations realize significant value. (See sidebar “Payment Options.”) Today’s economic environment also opens up new opportunities and flexibility to negotiate extended payment terms or early payment discounts through faster pay with suppliers.

World-class B2B supplier and payment strategies stem from having an actionable set of real-time information about actual spend. The financial supply chain provides an organization with critical visibility into key relationships – how best to collaborate with partners, how to negotiate terms, where discounts and service-level agreements can be improved, and how to drive better service and quality. Savvy businesses understand this and are adopting the right mix of payment tools to meet their needs.