Companies with long payment cycles often face major cash flow issues. As an accounts payable services provider, we have worked with clients in industries that take a long time to get paid.
We find that optimising AP – a back-office function – can lead to a surprising improvement in the cash flow of an organisation. For instance, the ability to make payments on time, every time, can give you enough negotiating power to get better supplier terms and avail massive discounts in the form of supplier rebates.
Unfortunately, most organisations do not have an optimised AP function. Simply put, most companies take too long to make payments and are not in a position to leverage the AP function for improving the position of their working capital. Let’s look at some of the most common issues and see how these could be overcome.
1) Lengthy, manual, paper-based process for approval and payments
Companies often have a long list of people that need to approve payments. Getting the approvals from busy stakeholders is often a key reason for delays in payments. And if the company follows a paper-based approval and payments process, the payments are very likely to get delayed. Similarly, invoices that are processed manually are prone to human errors, leading to incorrect payments or the processing of duplicate invoices.
The solution in a nutshell: Improve the overall process flow to reduce bottlenecks and automate/digitise as many steps of the process as possible.
2) Inability to track invoices and answer supplier queries in real time
If a supplier called your accounts payable department right now and asked for the status of a delayed or upcoming payment, can your staff resolve the query within a few minutes? If your answer is yes, we congratulate you on running a highly efficient AP department. For most businesses, especially the ones stuck with a paper-based process, getting visibility on the invoices awaiting approval is notoriously difficult. This lack of visibility and inability to give a clear answer is often a major reason for supplier dissatisfaction.
The solution in a nutshell: An automated accounts payable system helps to free you from the issues associated with the manual routing of invoices. Once the invoice has been recorded in the system, your staff can check its status in real time and resolve any queries related to it.
3) Inability to pay suppliers on time, missed discounts, poor supplier terms
Companies that purchase a large quantity of good or services can see significant savings via early discounts. Most suppliers entice businesses with the promise of a discount for on-time or advance payment – they know that most of their customer won’t be able to pay on time. At times, it may be better for your cash flow to delay payments, but that should be a conscious decision not a result of inefficient processes.
The solution in a nutshell: With streamlined AP functions, your business can ensure timely payments. This will not only help you optimise early payment discounts, but also give you leverage to negotiate better supplier credit terms.
4) The AP process comes to an abrupt halt in absence of key personnel
Isn’t it wonderful to have a reliable AP employee who knows everything about the business, has the names of all supplier contacts at the tip of the tongue, and is tuned in to all the key transactions taking place? Many AP departments run smoothly because of such outstanding AP professionals. However, an employee in such a position is on leave –or heaven forbid – leaves for better pastures, everything can come to a standstill.
Many organisations that function in silos across locations and sites, which often lead to people-driven operations. This over-reliance on individual skill often lead to fluctuations in the service quality.
The solution in a nutshell: For organisations that are going global, growing bigger or in the process of overhauling system and processes, people-driven operations are difficult to get rid of. Follow documented processes and put systems in place to ensure adherence – this will infuse scalability and efficiency into your accounts payable operations.
Happy to discuss
As a leading accounts payable outsourcing company, we have helped several UK-based businesses to standardise and automate their AP functions. If you would like to discuss the challenges you are facing and possible solutions, our team would be happy to help.
Email firstname.lastname@example.org or call 0845 838 2592.