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

Payment strategies to drive operational and financial success

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  • It's time to take the paper out of your payments processes
  • Look for the right mix of payment programs to support your unique business needs
  • Tap payment solutions that offer real-time visibility into actual spend


Following the economic downturn in 2008, 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. After all, they've seen what a tightly managed physical supply chain can do: greatly reduce lead times, lower inventory turns, and improve planning and forecasting.


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


Applying smart and efficient payment strategies and solutions to improve operational performance may seem like a no-brainer, but in many organizations, there's a significant gap between the procurement of goods and services and how the organization pays for those goods and services.


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, and in the process, put themselves in a better position 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 analysis of electronic systems, they consume more time, drive higher operational costs, are difficult to track and are easy targets for fraud. Electronic payments systems, on the other hand, 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 fisherman 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 fisherman 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 the power of p-cards and quickly 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 – corporate cards, ACH/electronic funds transfer, EDI, wire, checks – can help organizations from small businesses to Fortune 100 organizations realize significant value. (See sidebar "Payment Options" for a rundown of several different payment solutions that together can comprise an integrated spend and payment program.) 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.


[SIDEBAR:] Payment Options


What are the elements in a comprehensive, integrated spend and payment solution?


Purchasing Cards: Purchasing cards offer easy controls and simplified spend analysis, allowing you to leverage your organization's ability to manage procurement spend policies, drive significant cost savings, eliminate paperwork, improve spending control and accelerate delivery. Look for cards that enjoy the highest levels of acceptance within your supplier base and that offer extensive controls and reporting.


Travel and Entertainment Cards: The right T&E card will enable you to drive costs out of your systems, increase transparency and enhance spending controls. Look for cards with global acceptance, flexible billing and payment options, a robust set of cardholder benefits (including a rewards program) and comprehensive fraud protection.


Fleet Cards: Fleet cards can help you monitor and control fuel and maintenance expenses. They should come with detailed data management so you can capture a variety of transactional data, including amount, date of purchase and supplier name, as well as more detailed data such as odometer readings, driver or vehicle ID, grade of fuel purchased, quantity of fuel, unit price and sales tax paid. And of course, look for card acceptance at your vendors of choice.


Prepaid Cards: Prepaid cards are growing in popularity. They provide a safe and convenient alternative to cash and checks. Unlike a typical credit card, funds are pre-loaded onto the card and, as purchases are made, funds are immediately deducted from the available card balance, up to the prepaid amount.


Electronic Funds Transfer: Electronic funds transfers offer highly efficient electronic payments on the ACH or DEFT networks.


Approve2Pay™: Approve2Pay™, from my company, offers a convenient and flexible payment solution that combines the benefits of a purchasing card program with the added control and security of a buyer-initiated payment solution. Approve2Pay™ allows you to migrate paper-based supplier payments (typically checks) to an electronic solution, automate payments and maintain control over timing of payments.


About the Author


Terry Wellesley is managing director of BMO Financial Group.