Accounts Payable and income statements: guide
- 22 Jan 2022
- AP Automation
How closely do your Accounts Payable and Procurement teams work together? If you’re looking to streamline the supply chain and cut costs without compromising quality, then close collaboration between these two departments is crucial. The more AP and Procurement work together, the better your supplier relationships will be (and the more money your organization will save).
AP automation plays a critical role in the sourcing and procurement process. When everyone has access to relevant supplier and payment data in real-time, the team finds ways to reduce costs 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, invoices will appear as a surprise in the Accounts Payable department.
These types of unnecessary surprises lead to time-consuming investigations and 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 that they are strategically linked in three significant ways:
- Close collaboration minimizes risk. Enabling your Procurement and Accounts Payable teams to examine the data produced via AP automation allows them to find ways to claim back lost resources, protect the organization from unnecessary harm, and use human resources for data interpretation, strategy, business analysis, and supplier relations rather than mundane tasks.
- The team has access to pertinent data in real-time. AP automation provides your team with up-to-the-minute invoice information, as well as the opportunity to analyze key metrics beyond simply whether an invoices was sent or paid - such as how to improve supplier performance management and get a competitive edge.
- 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.
Real-time access to data puts crucial information at the fingertips of Procurement when they need it to negotiate savings, innovations, and more with the suppliers - any time, anywhere. This is particularly relevant in the post-COVID workplace, when remote work is more prevalent than ever. 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 through late fees, trust, and possible vendor relationships. Timely updates and payments protect the organization and may even encourage vendors who are enticed by Procurement to offer discounts for early payment.
- Businesses depend on vendors for parts and supplies to produce their products; 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.
- Procurement can use spend analytics to identify vendors operating outside of company policies (failing to comply with contractual terms or requiring more attention and care to maintain solid relationships) - ultimately leading to bottom-line savings.
How Poor AP Processes Have a Negative Impact on the Supply Chain
The pandemic has caused unprecedented disruption in the global supply chain, so it’s more important than ever to have a strategy in place to manage risks and minimize costs. Failure to adopt modern AP automation and poor AP processes severely impact your supply chain. Procurement often focuses on the “procure” aspect of procure to pay (P2P), with the second element sometimes overlooked. But the payment side provides strategic opportunities for procedure improvement and reduction of risks. AP automation plays a crucial role in the necessary fusion of these two sides.
According to Judy Bicking, AP leader veteran and IOFM consultant, “Automation is no longer a luxury, it’s a necessity...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 Accounts Payable teams 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 lead to 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; 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, and nurture supplier relationships.
- 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 that supplier 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 teams develop a cohesive strategy for supplier relationship, maximizing its full potential. With AP automation, both teams know the status of every supplier account and can detect issues before they become significant problems.
Show the Love and Watch it Come Back
Taking care of your suppliers is the best way to ensure that they take care of you. Supplier portals are an option, but are often hard to implement. Driving adoption with the entire supplier base can be difficult; unused portals serve little purpose 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 their sourcing partners.
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, communicate effectively with suppliers, and nurture the supply chain.
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