The supply chain volatility ushered in by the pandemic exposed just how much companies depend on vendors for critical goods and materials to run their companies. Supply shortages led to product delays, cash flow issues and frustrated customers, impacting businesses as well as the marketplace at large. Unfortunately, we can expect supply chain disruptions for quite some time, given labor shortages, the war in Ukraine, and China’s zero-COVID approach, among other issues.
In response, forward-thinking finance leaders are prioritizing supply chain stability as a strategic issue for their organizations. In MineralTree’s 2022 State of AP Report, nearly 71% of North American finance leaders say that their relationship with vendors has grown in importance over the past year, which is 12% higher than the previous year. As a result, companies are looking for ways to strengthen vendor relationships, become preferred customers and gain consistent access to the goods and supplies they need.
Faster payment is key to stronger buyer-supplier relationships
To boost these critical relationships, companies need to understand what their vendors really care about. The State of AP survey uncovered that, by far, vendors’ number one priority in the payment process is getting paid promptly, with 84% responding accordingly. Vendors have also been feeling the pain of supply chain issues – incomplete and late deliveries have caused processing and payment delays, wreaking havoc with cash flow. Inadequate working capital slows down the production of parts and goods, which in a vicious cycle, exacerbates supply chain shortages and delays.
Unfortunately, paying vendors quickly is not easy task for AP teams using manual processes. Invoice processing is time-consuming, error-prone and painstaking. AP staff need to enter data into their accounting system, code the purchases and match them to POs, route invoices for approval, and manage the workflow. Without visibility into all invoices, some can fall through the cracks, get lost or buried on someone’s desk, furthering delaying the process. Staffing constraints and hybrid work environments add to the challenges, especially when the AP team has to physically route invoices and track down reviewers.
Automation helps buyers solve these issues by digitizing all the tasks and significantly speeding up the process. It gives AP visibility across all invoices and where they are in the workflow at any point in time.
Digitization provides more than efficiencies and speed. Another key benefit is that it is much more accurate, avoiding the human errors that come with manual processes. The State of AP survey found that this is important too. After faster payments, vendors care most about accuracy, with 67% of them reporting it as a priority.
Electronic payments are high on the vendor wish list
Yet, automating invoicing is just part of the process. To expedite payments, it’s critical that payment processing be digitized as well. Issuing checks is a very time-consuming manual process. AP has to prepare them, route them for signatures, and then stuff, seal and mail them. Then the postal service adds days or more to the process.
Recognizing the advantages that electronic payments provide, an overwhelming number of vendors (82%) want to receive more of them in the coming year. They are looking to benefit from faster and efficient payments, improved remittance, cost savings and increased security and fraud protection.
Their desire matches that of buyers’ AP teams. Most finance leaders (71%) are opting for increased ePayments for time savings, more prompt payments, cost reduction and increased security/fraud protection, among other advantages.
Ironically, despite the mutual desire for ePayments, the number one issue impeding adoption is that each party believes the other is unwilling to use or accept them. More than half (57%) of finance leaders say that is the leading reason that they are not using ePayments as much as they would like, while 63% of vendors think that AP teams are not willing to give up checks.
The growing number of payment-related inquiries is painful for suppliers and buyers alike
Both suppliers and their customers’ finance teams are bogged down by payment inquiries. Many AP teams (43%) are spending more than six hours a month responding to inquiries from their vendors. Making these inquiries is also a top pain point for suppliers. While automating invoicing and payment processes dramatically reduces the time it takes for payments to be made, as well as the number of inquiries, some will still remain. Realizing the role inquiries play in delaying payments, many companies are committed to alleviating the problem.
Overcoming the barriers
Fortunately, there are technologies and services to help AP overcome these issues. Companies can elevate vendor service and address vendor needs in three ways:
- Automate as much as possible for faster payments. Digitization streamlines and speeds up the entire process. The more companies automate, the greater their returns. World-class companies that automate end-to-end, from invoice capture through payment, gain synergies to realize greater benefits. In addition to increasing payment speed and efficiencies, these include greater cost savings, visibility, accuracy – and ultimately, vendor satisfaction.
- Embrace ePayments to further reduce the time drain. Electronic payments reduce the time it takes for vendors to be paid, and it provides other advantages as well, including greater accuracy, reduced processing cost and higher quality remittance data. Given these advantages and widespread vendor interest in ePayments, there’s no reason for companies to wait.
- Use managed payment services to reduce time-consuming inquiries. Managed payment services provide even more help to AP teams and vendors. In addition to handling inquiries, these services also on-board and enroll vendors and manage the payment process. This promotes greater ePayment adoption for faster, secure payment and gives AP teams time to focus on other tasks.
Despite some obstacles, momentum is growing for automation and ePayments. That’s good news for business finance leaders and their vendors alike. The more AP automates these operations, the faster and more efficiently they can process payments, improve vendor relationships and stabilize supply chain risk. By being a good partner – and doing right by their vendors – they’ll also be doing good for their organizations and be well positioned during this time of supply chain volatility.