How AP and procurement are strategically linked
- 29 Oct 2018
- AP Automation
Accounts payable and procurement are strategically linked to streamline the supply chain and find ways to cut costs without compromising quality every step of the way. The more AP and procurement work together, the better supplier relationships and savings to the company can become in the future. AP automation plays a critical role in this process. When everyone has access to relevant supplier and payment data in real-time, the team finds ways to save money and improve interactions, such as discounts for early payments to suppliers.
How AP and Procurement are Strategically Linked
Accounts payable and procurement are part of the same process and must work closely together to ensure efficiency, cost control and accuracy. If the procurement process allows uncontrolled, rogue spending, then invoices will appear as a surprise in the accounts payable department. These types of unnecessary surprises necessitate time-consuming investigations, extra processing, resulting in late payments with potential penalties and a failure to hit the cash flow. The entire company benefits when the AP department and procurement recognize they are strategically linked in three significant ways:
- The liaison minimizes risk as everyone examines the data produced via AP automation to find ways to claim back lost resources, protect the organization from unnecessary harm, and use human resources for data interpretation, business analysis, and supplier relations rather than mundane tasks;
- The team has access to pertinent data in real-time for ongoing analyzation beyond whether invoices were sent and paid - such as how to improve supplier performance management and get a competitive edge; and
- An opportunity to free up cash and working capital to enable innovation opportunities. When procurement and AP departments work closely together, they can optimize cash flow management to free up money for other initiatives.
The Crucial Connections Between AP, Procurement and Vendors
The procurement department maintains positive relationships with vendors. Through the smart use of automation solutions, AP professionals can find opportunities to communicate with suppliers and improve overall operations. Access to data anytime and anywhere puts crucial information at the fingertips of procurement when they need it to negotiate savings, innovations, and more with the suppliers. Consider the role accounts payable plays, and how it helps procurement nurture better relationships with vendors:
- Late payments show disrespect and cost the company money, trust, and possible vendor relationships. Timely updates and payments protect the organization and may even encourage vendors who are wooed by procurement to offer discounts for early payment;
- Businesses depend on vendors for parts and supplies to produce their products, and automated AP workflows ensure vendors are paid accurately and on-time;
- AP automation solutions can help identify bottlenecks that slow vendor payments down, leading to poor relations and possible fees; and
- Procurement can add another layer to their spend analytics to find vendors outside of company policies, such as failure to comply with contractual terms and vendors who seem to need more attention and care to maintain solid relationships - the spend analysis ultimately leads to bottom line savings.
How Poor AP Processes Have a Negative Impact on the Supply Chain
Failure to adopt modern AP automation and poor AP processes can have a severely negative impact on the supply chain. Procurement often focuses on the procure aspect of procure to pay (P2P), with the second part sometimes overlooked. But the payments side provides strategic opportunities for procedure improvement and the reduction of notable risks. AP automation plays a crucial role in the necessary fusion of these two sides. Judy Bicking, AP leader veteran and IOFM consultant stated, “Automation is no longer a luxury, it’s a necessity.” She also stated, “When speaking to members of AP teams, they frequently report feeling tired of being blamed for everything that goes wrong in the procure-to-pay process and often get the sense they are perceived as mere overhead.” Bicking encourages AP to change their future by bringing value in three significant areas: protecting the company’s cash, delivering accurate and timely data for the financial statement, and maintaining a streamlined, compliant AP/P2P process.
Effective AP processes focus on much more than receiving and processing invoices. When neglected, they could endanger the supply chain, destroy supplier relationships, and ultimately harm supply continuity and quality. A poor AP process generates low visibility into the company’s spending pattern, which prevents working capital reduction initiatives.
- Errors cause a myriad of problems. Often these mistakes are a result of manual AP processes and poor data management. Inaccurate supplier and order data is a notable issue when it comes to maintaining positive relationships, and AP automation takes care of this routine, yet crucial, task;
- Breaking the supply chain can happen when organizations try to extend payments for greater access to working capital. The goal is to find savings opportunities, pay earlier to improve working capital as well as nurture supplier relationships; and
- Suppliers have power, and these relationships are crucial to business operations. Late payments and extended payment terms can lead to suppliers demanding earlier payment or terminating the relationship altogether.
Outstanding Communication and Service Makes a Difference
AP and procurement can work together seamlessly to deliver outstanding communications and service with suppliers. A good user experience improves the supplier’s perception of the organization and makes them want to develop a long-term relationship rather than ending it. Tension with suppliers impacts the supply chain, slows down production, and can harm an organization’s reputation and profits. Having the latest data available helps AP and procurement strategize each supplier relationship to maximize its full potential. With AP automation, the accounts payable team and procurement know the status of every supplier account to detect issues before they become significant problems.
Show the Love and Watch it Come Back
Showing the suppliers love is the best way to have that warm and fuzzy feeling come back to the organization. Supplier portals are an option but often hard to implement. Driving adoption with the entire supplier base can be difficult. Unused portals are useless and fail to support the AP department and its processes. Instead of trying to convince suppliers to use the portal, harness the power of AP automation. Use it to send regular supplier notifications with status updates on their outstanding invoices. This way, suppliers have the latest relevant information in their inbox and don’t need to call or chase the AP team to inquire for invoice status updates. This level of transparency and communication improves supplier relationships and helps procurement in future interactions with suppliers.
When accounts payable and procurement work together as a team, supplier relationships improve to the advantage of the organization. Plus, the AP team and procurement prove their value to the C-suite as strategic partners who know how to improve the bottom line because cash is king, communicate effectively with suppliers, and nurture the supply chain.
More finance and procurement resources
Our library of case studies, guides and much more are here to help you become a better spend management professionalView all our resources