The friction points of the payables process
In a perfect world, buyers and sellers would be able to seamlessly complete transactions using straightforward, automated processes. All elements of the buying process – including contract terms, logistics, insurance, remittance, payment options, currency and financing – would be transparent and connected within the process. While we’re making progress toward such a reality, today’s processes remain bogged down by an infrastructure that still requires too much manual intervention. The impact this has on businesses is twofold:
- They remain reliant on paper-based processes.
- They are caught between poorly integrated systems that don’t communicate effectively between one another.
Part of the problem of not being able to fully process and settle payments without manual intervention is due to a lack of standardization. Invoices continue to be received through multiple channels (mail, email, fax, transmission), which only serves to increase the challenge of seamlessly connecting invoice receipts to the purchase order matching, approval and payment workflow.
Another point of friction many businesses confront is the lack of visibility into all areas of the buying process by buyers, sellers and their banks or financial service providers. Communication and dispute resolution actions related to purchases are often performed outside the buying process and rarely include all parties involved. This leads to time delays, mistakes and missed opportunities for all parties involved in the transactions.
The opportunity to improve and benefit from integrated payable processes
The goal of cash and cost management should be to get the most bang for your buck. To accomplish this, organizations need to understand the payment ecosystem, which entails two distinct sides with often competing objectives.
The buyer side: Buyers procure a product or service, and provided they receive and approve that product or service, they make payment to the seller. It is in the buyer’s interest to maximize the time between procurement and payment.
The seller side: Sellers receive an order and subsequently deliver a product or service to the buyer, along with an invoice to collect payment. It is in the seller’s best interest to minimize the time between delivery and payment.
In most instances, organizations are both buyers and sellers, so the timing of payables and receivables is important to liquidity. And, chances are, they’ve already squeezed out all the savings they can from legacy paper-based processes. As a result, many organizations are moving toward electronic options that integrate with existing electronic payment options as a means to improve insights and efficiencies. The problem: this set up still lacks true integration and connectivity across the entire payment process.
When cash flow is adequate but profits are anemic or nonexistent, lack of a strategic approach to cash and cost management is often the cause of the problem. However, important changes are unfolding as electronic purchase order and invoicing tools continue to be enhanced by rapid advances in technology. In fact, new payment processing solutions are dramatically strengthening the connection between buyers and suppliers – both those currently doing business and those that have yet to work together.
Payment solutions currently available in today’s environment simplify the exchange of documents in the procure-to-pay process, while new systems improve efficiency and reduce costs by removing paper from the buying process. Also, new electronic processes allow businesses to fully consolidate all payment types – check, wire, card, Automated Clearing House – into one file. This simplifies processing by combining payments into a single workflow that improves the speed and accuracy of the payments that organizations make while freeing up resources to focus on more value-added activities.
My clients have also had success with another great option: a purchase card, which can enable businesses to streamline the payment process, reduce costs and take advantage of vendor discounts. Purchase cards also offer real-time tools to manage spending, access, usage, fraud and audit reporting, and the purchase card agreement can provide the employer with protection against employee misuse. We see businesses increasingly moving toward purchase cards because of the built-in controls, as well as rebate options.
Ultimately, investments in integrated payment processes should yield productivity increases. They can and will have a large, long-term impact on the overall buying process by increasing efficiency, enhancing visibility and improving capital – benefits that will translate to improvements throughout the purchase process by optimizing cash flow and minimizing expenses.
However, there is still room for improvement. The true value of integrated payment processes will be realized when integrated payment processes are developed that relieve the “pay slow, collect fast” tug-of-war between buyers and sellers. The good news: these technological advances are on their way. Until then, organizations should continue to invest in collaborative trade and dispute resolution processes that are directly connected and designed to strike the right balance between payment options to best suit the collective needs of both buyers and sellers.
Jeff Taylor is assistant vice president and relationship manager for business banking in KeyBank’s Vancouver office. He can be reached at 360.449.8059 or at jeff_w_taylor@keybank.com.
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