Manufacturers Face Significant Challenges, Accounts Payable Shouldn't Be One Of Them
- 22 Nov 2022
- AP Automation
Since the events of 2020, Manufacturing has become one of the most difficult industries to navigate when it comes to the procure to pay process. Manufacturers are under tremendous pressure to deliver quality products faster and at a lower cost than competitors. Add to that global turbulence, raw material availability, labor shortages and price volatility, it’s easy to see why manufacturers utilize automation on the shop floor to improve efficiency and profitability. But for some reason, the buck often stops there and fails to spread the benefits to the back office of the business – and finance in particular.
According to a recent survey of more than 300 finance decision makers in manufacturing companies, 46% agree that their organization either misses opportunities or does not innovate enough in the field of finance automation. It’s pretty clear that finance leaders realize their organizations could be doing more when it comes to AP automation for manufacturing, but begs the question of what’s holding them back? Keep reading to better understand the benefits of adopting AP automation in the manufacturing industry.
Making sense of complex invoices with smart technology
Invoices often require a lot of manual review and attention to detail because of how differently the raw materials are invoiced. This is because they source many raw materials in order to make one finished product. One product could require many invoices, and some manufacturers receive hundreds of thousands of invoices per year. They have to be able to handle unique line-item requirements like unit sizes. If you’re managing all of those details manually, it becomes a major bottleneck in getting invoices processed, approved and ready for payment. Plus, that’s just not fun for anyone involved.
From the moment an invoice is received, Artificial Intelligence-backed solutions can make quick work of the complex invoices manufacturers receive every day automatically match captured data from header and live-levels back to purchase orders and goods receipts.
Advanced AP automation software for manufacturing is even changing the way that the data is extracted from an invoice, and regardless of the format that invoice arrives in. Invoice capture software uses technology to intuitively extract invoice information such as supplier name, invoice number, order number and line-item details (item number, quantity, weight, price, etc.) – and learns with every invoice that passes through the system, recognizing patterns in invoices from each supplier so an AP staff member doesn’t need to make the same corrections or do any manual keying over and over again. This goes beyond basic digitization to making things actually automatic – we’ll even go so far as to say ‘autonomous.’ Welcome to the age of driverless accounts payable.
Give your suppliers the love (and money) they deserve
Keeping your supplier relationships strong is a priority focus for manufacturing companies. They need to make sure there are open and easy communication lines in place, especially if there have been difficulties with suppliers in the past, on either side. Another common strain on supplier relationships is late payments. Missing PO numbers or inaccurate master data, among other purely operational issues, can spell doom for supplier relationships. An integrated tool that allows finance and procurement to work together, as well as eliminate the operational bottlenecks that slow down payments and reduce manual work (and consequential errors) will make a world of a difference.
Failing to keep your suppliers happy – and paid – presents a potentially dangerous ripple effect. It’s incredibly risky for manufacturers to rely on manual, outdated invoice handling processes. After all, accounts payable is the main channel through which you pay your suppliers who likely provide the lifeblood of your very business. Failing to pay them on time or at all damages relationships and could spell disaster if they decide to withhold the goods you were supposed to pay them for. A report by McKinsey stated, “A single prolonged shock to production could wipe out 30-50% of one year’s earnings before interest, taxes, and depreciation.” Accounts payable automation for manufacturers significantly reduces the risk of a supply chain meltdown by bringing the invoice through payment process into the same automated framework you so often see on the factory floor.
Clear eyes, full heart, can't lose: Optimize working capital with cash-flow visibility
Imagine a manufacturing company processing 400,000 invoices a year. There are hundreds of moving parts; suppliers, warehouses and departments, different systems and often no clear path connecting all the above. Without a direct line of sight into the entire business, it can feel like looking through a kaleidoscope. Not only does this make managing your P&L and cash flow forecasting incredibly difficult, but it also means you might be missing critical errors and potential fraud. After all, you can’t analyze or act on what you can’t see.
Manufacturers are used to lean practices in their shops, so why shouldn’t they adopt the same methodology in the back office? AP automation allows you to house all your invoice and payment data in one system that cooperates and feeds data to/from your ERP in real time. Actionable dashboards within your AP automation system, including cash flow forecasting, DPO analysis and discount optimization, give you a one-stop shop for the most pressing financial health metrics. That means you can rest easy knowing the figures you passed along to the board are correct and the risks of a nasty surprise landing on your desk are slim to none.
Automate payments and let your business and suppliers breathe easier
According to a survey of nearly 3,000 global finance leaders, only two in five (39%) of suppliers’ early payment discounts are currently used by finance teams and instead, 45% of supplier payments are late. That not only looks bad, but it is bad for business on both sides. Not only are invoice approvals and the process taking too long (as we discussed earlier), but the problem also lies in the payment methods themselves.
While the tide has shifted and more organizations are looking to modernize the B2B payment process, almost 40% of payments made in 2022 in North America were still manual or check-based. Paper checks are problematic for a few reasons. First, they’re not cheap. The 2022 AFP Payments Cost Benchmarking Survey put the cost at about $4.00 per check, compared to just $0.40 for ACH payments. That’s because checks require multiple steps just to get them out the door: printing, approvals and signatures, a physical envelope and stamp – what are we, stuck in the 1980s? Even after it’s hit the mailbox, there’s pretty much zero visibility into where it is until that fund is deducted from a company’s bank account. Checks also leave the door open to fraudulent activity.
When you automate the payments process, you open up the possibility to move beyond paper checks to faster, more cost-effective and secure payment routes, such as ACH or virtual cards. The right AP automation vendor for manufacturers will tie electronic payments – both domestic and cross-border international – into your end-to-end invoice process. You’ll get better visibility into the entire process and know exactly where your payments are and which payment due dates are around the corner, which makes cash flow forecasting so much easier. Added bonus – virtual cards also typically involve rebates on AP spend, so you can be earning your business dividends just by using this payment method. Sounds like a win to us!
Why manufacturers love Medius
Medius helps manufacturers extend operational efficiencies past the production line and into accounts payable with AP Automation. With Medius, manufacturers will soar beyond basic AP automation with an artificial intelligence (AI) engine that grows smarter with every invoice that’s captured, coded, approved and paid. AP teams will be able to process high volumes of complex invoices faster and more accurately without increasing headcount or workload. Suppliers will get paid on time, every time and finance will gain complete visibility into what’s pending and what’s paid - allowing for optimal cash flow and accurate forecasts.
The Financial Professional Census
For every organization, big or small, the finance teams serve some of the most critical functions — enabling these businesses to quickly improve control, reduce risk, drive efficiency, and reduce costs. This huge responsibility inevitably comes with risks and struggles which can be amplified in uncertain economic times.Download the report to learn more
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