Choosing The Right Payments Process Impacts Cash Flow, Costs, Supplier Relationships And Risk

Pretty much every business out there understands the importance of paying their suppliers the right amount within the payment terms agreed. A businesses accounts payable process is an incredibly important part of their business but one that is typically neglected in terms of optimisation and transformation. 

Accounts payable and the processes involved in how businesses procure and pay for goods are never going to be as exciting as a new product/service or a shiny customer-facing piece of technology. In our experience, businesses view their procure to pay processes as being relatively contained with limited impact to the broader business, this is a common misconception. We break down how your payments process can impact areas such as cash flow, costs, supplier relationships and risk.

Cash Flow

We all know the saying “cash is king” reportedly coined by Pehr G. Gyllenhammar, who at the time was Chief Executive Officer of Volvo. Since the start of the pandemic this has never been more true. Businesses across the globe are facing unprecedented changes to demand and supply chain making financial forecasting hugely important. The payments process you choose for your business can have a huge impact on your ability to accurately forecast your upcoming payments, quickly assess your payment terms and key suppliers. If you have manual processes or processes that sit across a number of different platforms trying to get easy access to this level of data can be a big challenge.

Key area of focus:

• Ability to produce real-time reports on current liabilities and cash flow to help understand the financial picture and make fast, data driven decisions

Costs

Costs associated with processing an invoice are typically not tracked as it’s seen as a necessary cost of doing business – which of course it is. However, have you ever considered how much it costs to process an invoice? Based on our experience, the cost to process one invoice can range anywhere from $67 per invoice in organisations that have very manual, usually paper-based processes all the way down to $7 per invoice where they have an optimised and automated procure to pay process.

These costs can add up quickly, consider if you process 10,000 invoices a year – this could be the difference between costing you $670,000 to process those invoices vs $70,000 a difference of over $600k. The payment processes you choose can have a real impact on how much effort, and therefore cost, is involved in processing an invoice. As a very simple example, if you are using digital purchase orders, the time to process an invoice drops dramatically as the approval and coding can be imported from the purchase order. 

Key area of focus:

• What is the average time taken for an invoice from receipt of invoice to processing for payment and how many people are involved in the process. This will help give you an indication of your cost per invoice and identify the cost savings opportunities available

Supplier Relationships

The pandemic has highlighted how important supplier relationships are to being able to handle times of change, whether it be asking for extended payment terms to help with cash flow, getting rush deliveries during shortages or being at the forefront with supplier-led innovation and taking new products to market. Your relationship with your suppliers will determine what they are willing to do for you above and beyond their other customers.

Your payments process has a huge impact on your supplier relationships, if you consistently pay late as your invoice processing cycle times are long or if your suppliers are constantly having to chase for payment on invoices – you are not going to be in the good books with your suppliers. Ensuring you have a payments process that can ensure that invoices are processed swiftly and one that is easy and transparent for your suppliers is key to ensuring you are maintaining good relationships with your suppliers.

Key area of focus:

• To identify the impact of your payments process on your suppliers take a look at your on-time payments stats as well as the number of queries you receive from your suppliers. If you receive a lot from a group of suppliers you can guarantee it will have a negative impact on your relationship with that supplier.

Risk

Every business leader in every organisation cares about risk and certainly makes every effort to mitigate risks that their business faces. Your payments process (and the supporting procurement process behind it) carries a huge amount of risk. In our experience, we typically find that organisations that are at the lower end of the payments process maturity scale face a number of different risks, specifically:

• Key processes not being able to be undertaken due to staff being unavailable or unable to get to the office.
• Accounts payable processing incorrect or duplicate payments.
• Accounts payable processing fraudulent payments.
• Business engaging with a supplier without conducting supplier risk assessment including adherence to government modern slavery and sustainability policies.
• Difficulty in meeting financial and taxation reporting requirements.
• Missed payments to suppliers.
• Unable to spend time on corporate improvement projects due to heavy, manual workload.
• Spend on non-business essential items.
• Business engaging with a supplier without going through financial due diligence.
• Duplication of financial and operational data due to fragmented technology landscape.
• Duplication of effort and processes due to fragmented technology landscape.
• Late payments being made to suppliers.
• Accounts payable processing non tax compliant invoice.

Each of these risks can be particularly damaging for a business.

Key area of focus:

• Map out your core payment processes and run a risk identification session to see which of these risks you’re are currently vulnerable to and identify ways to mitigate those risks.

Choosing the right payment process can be difficult, there are so many different options and platforms out there it’s hard to know what is the right one for you. We’ve worked with a number of organisations to help guide them through the process of identifying the right processes, services and technology required to drive real value from your payments process.