Traditionally the Procurement department is responsible for maintaining relationships with vendors, including contract negotiations, compliance to terms, and pursuing discounting opportunities. But it is essential to understand how the accounts payable process plays a critical role in the day-to-day work to keep these vendor relations on a positive track to enable benefits for the entire organization.
What the Research Reveals
Research reveals 47 percent of companies pay one in 10 invoices late, 16 percent admit one-fifth of their payments are never on time, while only five percent of businesses can assert they always pay on time. One in 12 does not monitor their payment processes at all.
Late payments to vendors are disrespectful and a risk for disruptions in cash flow and supply chain. The causes of late payments include slow internal processes, lack of automation, administrative error and capacity to manage invoice volume. These are merely excuses for poor performance. You would probably not accept these excuses when dealing with vendor performance issues. And vendors should not have to work around your internal process flaws.
Supporting a Strong and Continuous Supply Chain
Vendors are crucial to a company’s success. Consider the manufacturing and retail industries. Business relies on their vendors to provide the necessary parts and products to complete their offering to the end customer. These companies can’t afford to lose key vendors due to an inefficient accounts payable process that results in faulty, late or lost vendor payments.
Organizations who automate their AP workflow speed up invoice processing and ensure vendors get paid accurately and on-time. And vendors who get paid on time are more likely to return this favor with swift delivery of goods and future discount opportunities.
An excellent example of how AP automation can support stronger vendor management is the fashion brand Marc Jacobs. The company launches a new collection every four months and relies on vendors to take the creations from the runway to the network of stores and retailers around the world as quickly as possible. By implementing an AP automation solution, they have been able to shorten the lead time of paying vendors from 45 days at best to an average of 11 days, with happy vendors as the result.
AP Data as a Tool for Successful Vendor Management
AP teams with a digital solution in place will also be able to support other parts of the organization, including procurement, buyers, and management, with the data and intelligence needed for better vendor management. AP can provide the Finance team with reporting on where late payment fees occur, inform budget holders on actual vendor spend against a cost center or project, and help identify bottlenecks in the process slowing vendor payments down.
In particular, with all invoice data at hand, the Procurement organization can add another layer to their spend analytics to unveil vendors outside of company policies. This layer may include vendors who are not applying contracted terms, as well as those vendors that need additional care to maintain a healthy relationship.
Also, modern AP automation solutions can provide a vendor notification tool that automatically notifies vendors of the status on their current outstanding invoices. As a result, they no longer need to contact the AP team or buyer manually to find out where in the process the invoice stands, when it will get paid, etc. This level of automation is a significant time-saver in the day-to-day life of vendors and AP staff.
The accounts payable process plays an integral role in the management of vendor relations that are critical for any business’ survival. With a fast, automated accounts payable process, vendors will be paid accurately and on time, securing healthy vendor relationships and a future supply chain. By leveraging the data in the AP automation solutions, businesses can identify tactics to further support cost savings and efficiency in the AP and procurement processes.
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