3 Routes to Strategically Linking Procurement and Accounts Payable

When it comes to managing accounts payable processes, leading procurement organizations know that invoicing, supplier management and payments present both serious risks and strategic opportunities for the business. But while identifying risks is a logical first step to elevating the charter of accounts payable from back office workflow to strategic capability, best-in-class organizations know they must push the envelope of what AP can offer to truly enable long-term business success.

To do that, procurement must ditch last century’s manual, paper-based processes and embrace an automated approach. By reducing errors and freeing up time to contribute to strategic initiatives, AP automation allows procurement to lead the business by reducing risk exposure, improving supplier collaboration and even helping to tap new sources of innovation. 

1. Avoid Risk

Manual, paper-based AP processes are error-prone, time-consuming and ultimately lead to increased risk exposure. Automating AP allows procurement to not only claw back lost savings and valuable human resources but also to protect their businesses from unnecessary harm.

One major example is a persistent accounts payable risk: fraud. According to the Association for Financial Professionals’ 2017 Payment and Fraud Control survey, 74% of finance professionals reported their companies were victims of payment fraud in 2016, a number that has consistently increased over the last several years. Chief among fraud risks was a resurgent use of check fraud and compromised business emails.

By digitizing payments and enabling electronic communication with vendors, AP automation systems not only provide significant functionality advantages but also help the business avoid risk altogether. While most businesses in the AFP survey were able to prevent fraudulent checks and invoices from becoming a crippling cost in dollars, stanching the loss in time due to identifying issues and resolving disputes remains a challenge.

A fully digital approach helps procurement and AP teams focus on strategic priorities, such as identifying savings through available discounts and rebates, rather than on processing data and putting out fires. What’s more, automating AP processes allows these teams to capture more data than they could in a manual system, opening the door to new strategic insights.

2. A Solid Data Foundation

Procurement and AP teams should monitor far more information about suppliers than simply how many invoices they’ve sent and whether they’ve been paid. When done right, strategically focused AP processes can improve supplier performance management and provide a competitive advantage to the business.

Foundational to this effort is establishing the accurate entry and maintenance of supplier data as a top priority. Approaches that rely on piles of paper or email to gather data or exchange information with suppliers are both vulnerable to inaccuracies and impossible to scale. Capturing contact and contract information electronically and communicating with vendors through a secure supplier network helps procurement to avoid such missteps, allowing teams to incorporate more strategic initiatives into their AP processes.

To understand how this would work, consider the wealth of data that procurement can mine from accounts payable processes. In addition to the accuracy and time frame for paying an invoice, companies can also glean valuable supplier performance data, such as the rate of on-time delivery, product quality metrics, and available terms that could lead to a discount.

Actively monitoring such information positions procurement to both secure additional savings and also more accurately scrutinize supplier performance, thus ensuring that supply chains operate as efficiently as possible and underperforming vendors are replaced when necessary. In advanced scenarios, such strategic data management can help businesses foster and secure an even more scarce resource: innovation. 

3. Access Innovation 

While it may sound far-fetched to suggest that ensuring accurate and timely supplier payments will lead to market-leading innovations, the savvy procurement professional knows that strategically focused AP processes open business opportunities in two key ways: improving supplier relationships and increasing working capital.

A supplier that is frequently underpaid or forced to accept onerous payment terms is unlikely to view its customer in a positive light. Ensuring smooth and accurate AP processes is one of the first steps in securing a productive supplier relationship. Just as procurement gains valuable performance data through better supplier information management, automated AP systems bring suppliers closer to their customers, helping them to build trust and increase communication opportunities.

Establishing the foundation for fruitful supplier collaboration is, of course, a long-term effort. To provide strategic support to the business in the nearer term, procurement can help push innovation by freeing up working capital.

Take a recent observation from McKinsey & Company as an example. For supply chain management groups at aerospace and defense companies, a new mantra is replacing the former prioritization of profit: that cash is king. This mantra is taking hold because companies in the A&D sector are looking for capital to pour into investments, from improving current offerings to manufacturing innovative new products.

Procurement and AP teams are uniquely situated to support these initiatives through careful vendor management. AP automation systems allow these teams to maximize savings by alerting them to the potential for early payment discounts, volume rebates and, in certain cases, trade financing opportunities. Focusing on these areas helps procurement identify cash trapped on the balance sheet and free it for the business to use in strategic endeavors.

Taking the Next Step 

While all of the above routes will not translate into business-changing strategies overnight, they illustrate the untapped potential procurement can find if it approaches accounts payable with a new mindset. Key to this shift from back office paper pushing to innovative business function is the role of AP automation, which will free up valuable resources from scrutinizing the details of individual invoices and put them to work on more value-added projects. Whether that’s laying the groundwork for a closer relationship with a supplier or freeing cash to develop an industry-beating product, procurement has much to gain by seeking the strategic advantages hidden beneath AP’s surface.

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