While Suppliers Value Payment Speed, AP Teams Struggle

By embracing automation and leveraging managed payment services, finance teams can reap the substantial benefits while also strengthening critical supply chain relationships.

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The pandemic put a sharp focus on the importance of strategic supplier relationships and that sentiment has only continued to grow. While there are many factors impacting the health of these relationships, the speed and efficiency with which suppliers get paid continues to play a big role.

But how well equipped are buyers to address their suppliers’ needs? While vendors rank speed of payment as their top priority in the payment experience, new research from MineralTree suggests that many are unhappy with the length of payment cycles and the time it takes for buyers to respond to their payment inquires. 

Macro-Factors are Putting Pressure on Supplier Relationships and Payment Processes

In an uncertain economic environment, many finance leaders are focused on boosting productivity and efficiency. And that includes accounts payable (AP). A majority (59%) of the finance leaders surveyed by MineralTree said doing more with less was top of mind, followed by reducing AP processing costs (49%); improving the ability to manage cash flow (43%); and gaining better visibility into their current cash position (42%).

At the same time, finance teams say they are bogged down with vendor payment inquiries, data entry and other manual, time-consuming tasks. Nearly half of AP teams are spending more than six hours per month following up on vendor inquiries. Suppliers are also unhappy with the time it takes to follow up on invoice status, and it remains their top pain point in the customer payment process followed by reconciling payments and cash application.

Of greater concern is that supplier dissatisfaction appears to be growing. Just over half (52%) of the vendors surveyed feel that AP teams follow up on their payment inquiries in a timely manner, compared to 56% in a similar survey in 2022.

Despite the pressure to raise payment service levels for their suppliers, finance leaders looking to add staff to do so are facing difficulties. Almost half (45%) of the survey respondents anticipate hiring challenges and delays. Additionally, AP teams continue to work remotely. The survey found that 68% of AP work environments are hybrid or fully remote. And this trend is expected to increase to 72% of workplaces in 2024, further exacerbating the challenges for businesses with manual AP processes.  

Vendors Value Payment Speed and Accuracy Above All Else

In MineralTree’s research, vendors ranked speed of payment as their top priority (4.9 on a 5-point scale) in the payment experience, followed closely by accurate payments (4.7).

AP teams, perhaps prompted by supplier inquiries, also identified speed of payment as being most important to their vendors, followed by accurate payment.

Yet, checks remain entrenched. 36% of AP teams indicate that they make 51% or more of their vendor payments via check – roughly equal to ACH.

Paying by check is a huge burden for AP teams. They need to manually prepare checks, get them signed, and stuff, seal and mail them. It also slows down payment to vendors, who not only have to deal with processing delays, but also wait for checks to arrive in the mail. Check payments are also expensive. Industry experts estimate that it costs between $4-$20 to prepare each check, including the cost of labor, materials, and postage. And, when it comes to fraud, checks are the most vulnerable payment method according to the Association of Financial Professionals.

Digital Payments Provide an Answer, but Finger-Pointing and Other Obstacles Slow Progress

Both AP teams and suppliers are interested in digital payments for the same reasons – faster, more timely payments and increased efficiencies. Finance leaders also get cost savings, while vendors streamline their remittance processes. And both groups want the increased security and fraud protection.

While adoption continues to grow, it’s not what it should be.  

Buyers’ and suppliers’ mistakenly blame each other. AP teams cite vendor unwillingness to accept digital payments as the number one obstacle. Yet, in reality, just about all vendors accept some form of digital payments. According to MineralTree’s research, 99% accept ACH, 79% take wire transfers, and 64% accept plastic or virtual credit cards.

Ironically, the top digital payments obstacle for vendors is the perception that their customers are reluctant to move away from checks.

The second most cited obstacle to digital payments for buyers is their limited capacity to contact, enroll and manage vendors. Many teams are just too stretched to take on these additional roles.

Despite these challenges, 70% of AP teams plan to increase digital payments over the coming year. And given their preference for faster payments, the great majority of suppliers (79%) also want to receive digital payments, including wire, ACH, and virtual cards. One key reason— they believe that when buyers pay electronically, they are more likely to pay on time.

Accelerating Adoption and Improving Vendor Relationships

There are several steps buyers’ finance teams can take to increase digital payment adoption to free up staff, reduce operating costs and solidify key supplier relationships. Here are three places to start.

  • Take advantage of managed payment services.

Payment services providers can remove the burden of contacting, onboarding, and managing suppliers for digital payments, while significantly increasing the number of suppliers accepting them through ongoing outreach and continuous enrollment. Managed services also improve vendor relationships by addressing their payment inquiries quickly and effectively – and providing the human touch they are looking for.

  • Embrace automation.

AP automation has become the norm and will continue to grow as lean teams struggle to process growing volumes of invoices and payments with limited resources. If you haven’t started automating yet, now’s the time to begin. If you’ve already automated some AP processes, multiply the benefits by digitizing others. Only 20% of AP teams have fully automated their processes, so there’s plenty of ROI opportunity.

  • Look across the end-to-end AP process.

AP automation accelerates digital payment adoption. In MineralTree’s survey, teams with digitized AP processes increased ACH payments by 68%, and virtual card usage by 34%, while decreasing check payments by 57%. When companies automate AP, it is easier for them to pay electronically, and the synergies they achieve across the entire invoice-to-pay process compound the benefits. End-to-end automation increases efficiencies so they can do more with less according to 89% of finance leaders. It also enables faster, more timely payments (67%) which helps keep vendors happy; provides greater visibility and control to manage cash flow (47%); reduces costs (44%), streamlines reconciliation (36%), and protects against fraud (34%).

Digital payments are a win-win scenario for buyers and their suppliers. By embracing automation and leveraging managed payment services, finance teams can reap the substantial benefits while also strengthening critical supply chain relationships at a time when they are needed most.