It should come as no surprise to anyone in treasury or finance that most companies are facing pressure to optimize their working capital management. One of the many ramifications of the recent financial crisis is a heightened awareness of liquidity risk across the board. Some businesses are focused on growing their cash reserves, whether in anticipation of future increases in interest rates or out of concern that credit may not be available to them, at any cost, down the road. Other organizations are spending cash on paying dividends to shareholders or reinvesting in the business. Either way, most companies are much more vigilant today about optimizing use of their working capital than they were a decade ago.
Some companies have responded to this post-recession reality by squeezing their suppliers and pushing out their payment terms. Although this strategy benefits working capital management at the customer company (the buyer), it obviously has the opposite effect on the seller, resulting in unintended ripple effects on the buyer/supplier relationship. Delayed payments put pressure on cash flow, making it difficult for suppliers to pay their bills, make payroll, or fund expansion. They might also need to incur borrowing costs while waiting to be paid. Since delayed payments can reduce the financial stability of the supplier organization, they can also add risk to the supply chain and may eventually constrict the buyer’s procurement options.
A key driver of reduced costs, accelerated processing time, and greater visibility is automated invoice processing. According to Ardent Partners’ report, the exception rate handling for best-in-class A/P departments is 8 percent, compared with 16.4 percent in other organizations. Similarly, straight-through processing without any human interventions occurs about 50.3 percent of the time in best-in-class organizations, compared with 12.3 percent of the time in other businesses.
Achieving benefits on this scale requires more than just implementation of a new software package for the payments department. It requires true organizational change—which typically encompasses changes to processes, policies, and people’s behaviors and skills, as well as technology. Here are six key strategies that A/P change makers are harnessing to achieve world-class payment practices:
Automating processes. Scan-and-capture and e-invoicing technologies can help an organization efficiently pull all of its incoming invoices into a centralized system. These technologies, when coupled with an automated payment workflow, are key to achieving the reduction in invoice processing times that the Ardent Partners research found in best-in-class companies. Automating the payment process makes cash flow more predictable for the treasury staff and enables A/P to time every payment more precisely and strategically.
There are a number of ways invoices can be sent via email, yet without the proper technology in place, sending a PDF invoice to a buyer does nothing more than shift the printing costs of that invoice from the supplier to the buyer. There is, however, software that enables companies receiving PDF invoices to automatically capture that information in their A/P systems. The benefits of true e-invoicing in the cloud are numerous: eliminating manual data entry, cutting down on delays in receiving invoices and instances of lost invoices, and greatly reducing errors.
Best-in-class organizations are also taking advantage of mobile technologies to meet the 24×7 needs of today’s mobile workforce. When managers and staff can view, review and approve invoices anywhere, at any time, they can expedite the payment process. The company won’t experience logjams whenever a key manager leaves town. Moreover, since mobile apps provide staff with access to their purchase-to-pay systems and data analytics anytime, any place, they enable complete transparency and visibility over the entire process.