How to Smooth Manufacturer-Supplier Relationships Through AP Automation

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Spend Matters welcomes this guest post from Howie Hahn, senior sales engineer at Esker.

Success in manufacturing depends on the mutually beneficial relationships between manufacturers and suppliers. Each party relies on the other to live up to its obligations, if either expects to move towards long-term success and growth.

But business, like life, doesn’t always go as planned. Though their fates may be intertwined, in reality manufacturers and their suppliers have separate balance sheets, cash flows, expenses, and short- and long-term priorities. That means even relationships based on trust and mutual benefit can get rocky.

The key is to make sure that the inevitable bumps in the road don’t morph into ill feelings, mistrust or, worse, lawsuits. One tool that can help ensure that manufacturers and suppliers maintain smooth relationships is accounts payable (AP) automation. Think about it. Nothing keeps a supplier happier than on-time payments, particularly when cash is tight and payroll and other critical expenses come due.

Dynamic Discounting

The benefits of AP automation extend beyond ensuring your suppliers get paid on time. Automation also enables programs that can actually strengthen the relationship and underscore the benefits of working together.

One such benefit is dynamic discounting, a process only possible when manufacturers fully automate their AP process from start to finish. Dynamic discounting is especially attractive to both suppliers and vendors because it encourages manufacturers to pay invoices early in exchange for a percentage discount off the amount owed. The exact percentage of the discount is often determined by how early a payment a supplier desires.

To put it mildly, this sort of invoice discounting is not possible when AP processes remain manual. The more human hands needed to shepherd an invoice through the AP process, the more likely there will be problems or mistakes. People have many demands on their time and make mistakes, which means far too many hours can be devoted to locating invoice data or trying to find erroneously processed invoices. Of course, this often translates into even more time devoted to resolving disputes and updating suppliers on the status of their payments.

It’s no surprise that the late fees manufacturers pay as a result of those delays can sour an important business relationship. Contrast that inefficient approach with an automated one that enables benefits like dynamic discounting. Instead of searching for a lost invoice or answering an angry phone call from suppliers, manufacturers can instead offer up early payments at a discount. That helps their suppliers meet their payroll, while helping the manufacturer trim their own expenses.

AP Automation

But an automated end-to-end AP process can do so much more for both manufacturers and suppliers. For instance, the very best automated AP systems allow for expedited payments, even when dynamic discounting isn’t being used. This can be helpful to manufacturers when their AP staffers are on vacation or get distracted by other duties. At the same time, automated AP can provide vital security checks on the authenticity of invoices being processed, as well as who is approving those invoices.

Automated AP can also be paired with analytics, so buyers can see who they’re purchasing from, how often and how much. Insights like these can be powerful tools in negotiating rates with suppliers.

Automating the AP process has other benefits that come from collecting and storing data electronically on a robust and transparent system. Manufacturers and suppliers communicate more efficiently and accurately, for example, when vendors can see the status of invoices at any time via a self-service portal. And collecting data electronically unleashes the power of analytics, which staffers can use to reduce the time spent resolving payment disputes.

But with all these benefits, perhaps the most important benefit of automated AP is this: Automation frees up the manufacturer’s staff to cultivate and strengthen the supplier relationships that matter most.

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