Supplier Retention Seen as Increasingly Important to Businesses, But What About Screening?

suppliers DOC RABE Media/Adobe Stock

For today’s executives, achieving supplier retention is increasingly seen as vital to the business. When the payables automation provider Tipalti surveyed executives on issues related to supplier payment, 68% of respondents said that maintaining long-term business relationships with their payees is critically important.

This came as somewhat of a surprise for those who worked on the study. “We did not expect the result to be so high,” said Chen Amit, chief executive of Tipalti, who hypothesized that this focus on supplier retention may be a result of increased competition for quality suppliers, increased usage of freelancers and contractors, and an increasingly globalized supply chain.

The full results of the survey were published in Tipalti’s report, “Supplier Payment Automation Strategies,” and the 105 executives who took part represent a variety of industries and revenues. More than half (57%) onboard fewer than 20 new payees per month, though 10% onboard 100 or more.

The number of transactions processed per month varied significantly from respondent to respondent. Three out of four respondents said they handle somewhere between 101 and 5,000 transactions per month. Nineteen percent handle 100 or fewer, and only 7% handle more than 5,000.

There were some interesting subtrends in the data. Amit points out that the group of businesses with $250 million–$500 million in revenue had nearly twice the payment rejection rate. “[This implies] there is likely a growing complexity in their processes and probably the lack of robust processes to handle the challenges,” he says. “This group also had the highest rate of manual payment processes (55%), yet they were the least likely to have an implementation plan to improve (73%).”

What united the respondents, however, was their general agreement that invoice processing is one of the most time-consuming payment-related tasks that they complete each month. Other time-intensive activities included supplier onboarding and payment reconciliation.

While supplier retention is receiving plenty of attention and emphasis, a critical risk-related area is not. Only 44% of respondents reported that they screen payees against the Office of Foreign Assets Control (OFAC)’s sanctions list or other national blacklists for connections with drug trafficking, money laundering, terrorism and the like. However, 32% said that they do not screen payees, and 24% were not sure whether they do.

“After seeing this type of result several times now, I think the main reason is mostly due to a lack of awareness about these requirements and the best practices to comply with them,” Amit said. This is certainly one of the top payment-related weaknesses that are critical for businesses to overcome, especially if they do business with international suppliers.

Indeed, 25% of respondents said that at least 11% of their payments are made to international suppliers. The survey did not specify how many do not make any payments to international suppliers, though international payees account for less than 3% of payments for more than a third of the respondents.

“Too many finance leaders and AP professionals simply don't realize they need to be checking against these various lists — not only during supplier onboarding, but prior to every single payment — for both domestic and cross border suppliers,” Amit said. “The enforcement is only increasing, and the risks to the business of non-compliance, such as having your bank shut down [or] criminal liability, are too great to continue looking the other way.”

He adds: “Of course, no one wants to add yet another manual process to their already complicated manual procurement and AP workflow, but this one should not be an optional step.”

Fortunately, more companies are in fact taking this step. When Tipalti conducted a similar report in 2015, only 34% of respondents said that they screened payees and 42% said that they do not. Interestingly, the percentage of respondents who were unsure remained significant at 24%.

Another common weakness, according to Amit, is that supplier payment operations still tend to be run using manual processes, which are more prone to error, as well as difficult to scale.

“Ultimately, this leads to poor AP metrics, decreased business profitability and damaged reputation[s],” Amit says. “For example, if you solve your invoice processing issue but your payee onboarding is non-existent, outdated, and error-prone, this will lead to a problematic vendor master record, which then leads to invoice and payments errors, OFAC and fraud exposure, FATCA tax compliance and reporting issues, and inefficient payment methods.”

Check out the report here.

Share on Procurious

Discuss this:

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.