One of the most important components of any successful procurement strategy is vendor management—specifically, supplier relationship management. You count on the suppliers you’ve chosen to meet your needs and keep your company’s countless processes ticking along at peak performance and efficiency, so it makes good sense to invest in building strong relationships based on trust, honesty, and mutual benefit.
And yet, some procurement teams overlook an important ally in the fight for productive, enduring supplier relationships: the accounts payable department. AP processes are ideal for optimization with modern procurement technologies like artificial intelligence and AP automation. And for companies that take advantage, AP vendor relationships can prove a significant source of value, strategic sourcing opportunities, and enhanced competitive performance.
Why AP Vendor Relationships Matter
Like all business processes, the vendor management process requires an awareness of what’s working and what isn’t to be truly effective. Companies that invest heavily in supplier relationship management but forget to factor in the role of their AP team in establishing and strengthening those relationships may find themselves struggling to achieve an optimal ROI—or worse, having to repair vendor relationships damaged by late or missing vendor payments and other errors.
The strength of the connection forged between the AP department and your vendors lies in the accuracy, speed, and reliability your company demonstrates in making invoice payments. If staff in the payable department is bogged down with manual, pen-and-paper processes, they’re likely struggling to overcome a number of obstacles to healthy vendor relationships, including:
- Manual data entry and error corrections.
- Invoice fraud.
- Poor communication, leading to additional risk of:
- Miscommunication, unclear expectations, and interpersonal conflict.
- Late, multiple, or missing payments.
- Late fees, missed early discounts, and canceled contracts.
The impact of manual AP processes on vendor relationships and your company’s bottom line can be truly stunning. A 2018 report from research firm Levvel found that only 33% of organizations they surveyed were able to capture early payment discounts. Just over half managed to capture these discounts “sometimes,” and 16% never managed to capture any early payment discounts at all.
In addition, the same slow and tedious manual processes created additional risk and expense by devouring the lion’s share of AP staff work hours. Levvel found that more than a third of AP workers were spending either 1-3 hours each week (36%) or 4-8 hours each week (35%) resolving AP process errors and issues, while 14% spent as much as half an average work week—up to 20 hours—doing so.
While these statistics are sobering from a cost perspective, it’s also clear how powerfully such conditions can impact vendor relationships. Missed or delayed payments, invoice errors, duplicate invoices, invoice fraud, and other kinks in the vendor payment process can quickly devastate both a company’s relationships with its current vendors and its reputation as a reliable customer with others.
And this type of damage is small potatoes compared to the potential fallout from intentional and malicious accounting shenanigans. Companies with manual AP processes have substantial risk exposure in the form of missing oversight and cross-checking verification (as compared to those using AP automation), and are therefore also much more susceptible to internal fraud. Big or small, this fraud has the power to be devastating to your company’s reputation, making it harder to source goods strategically and maintain competitive health.
And it’s not just your reputation with vendors that’s at risk. One need only revisit the fate of fallen titans like Enron or WorldCom to see how unchecked AP fraud can destroy not just vendor relationships and public reputation, but entire organizations.
“Preventing both damaged vendor relationships and company-imploding fraud is much easier when an AP automation solution is used.”
Automate Your AP for Stronger Supplier Relationships
Thankfully, as technology evolves, global supply chains become more sophisticated, and companies embrace digital transformation, the risks created by outdated AP workflows are increasingly preventable for businesses large and small. Preventing both damaged vendor relationships and company-imploding fraud is much easier when you automate your AP processes.
As an essential part of the procure-to-pay (P2P) cycle, the accounts payable function presents procurement departments rich opportunities to achieve:
- A stronger bottom line.
- Greater cost savings.
- Improved cash management.
- More strategic use of time and talents by AP staff.
- Faster, more secure invoice processing with fewer errors, fewer late payments, and more early payment discounts captured.
- Improved negotiation footing and opportunities for innovation and growth through improved vendor information management and vendor relationship management.
A cloud-based procurement solution like PurchaseControl gives companies the toolset and versatility necessary to achieve these goals by incorporating accounts payable automation into a larger procurement optimization and business process management strategy.
For example, Levvel’s 2018 study found that companies who invested in AP automation tools benefited in numerous ways, including:
- Faster invoice approvals
- Higher staff productivity
- Lower overhead and AP staff costs
- Greater AP visibility
- Lower costs for processing invoices
- Improved compliance
- Fewer late fees, penalties, and interest charges
Automation software helps streamline and optimize processes to provide total transparency into all transactions, full control over invoice data (and vendor data in general), and integration with existing enterprise resource planning systems (ERP systems), accounting, and other applications already in your software environment. Consequently, vendor payments are:
- Made more quickly.
- Automated approval workflows with contingencies ensure invoices aren’t lost in the shuffle or languishing in an unattended mailbox.
- Automatic payments through automated clearing house (ACH)
- Support for electronic invoicing (eInvoicing) through vendor portals
- More accurate.
- Automatic three-way matching to verify vendor invoices against shipping documents and purchase orders.
- Automatic population of invoice data, vendor data, and information such as payment terms and contract-specific details.
- More cost-effective.
- Swift payment means more early payment discounts and fewer late fees.
- Accounts payable process optimization reduces labor costs.
- Automation eliminates human error and low-value work like data entry and frees staff to pursue more strategically important tasks.
- Real-time reporting makes for more useful insights and strategic decision-making.
- Total data transparency optimizes cash flow management so the bills can be paid while still leaving resources available for growth, innovation, and emergencies.
All of these benefits combine to improve vendor relationship management for your organization. Vendors who have a clear understanding of your expectations and obligations, and are paid accurately and on time (or early), are happy vendors.
They’re also more likely to become strategic partners rather than simple suppliers, provided your company is invested in expanding the relationship to that level. When vendors can connect with your accounts payable team directly and communicate clearly and easily, it’s much easier for trust to grow and collaboration to blossom.
Quick Tips for Optimal AP Vendor Relationships
Beyond implementing an AP automation solution, you can also strengthen AP Vendor relationships by incorporating a few best practices in your overall vendor management approach.
- Focus on clear and continuous communication.
- Connect with vendors regularly to review shared expectations and performance.
- Take a collaborative, rather than confrontational, approach during any conflicts.
- Integrate your vendors into your datastream and procurement workflows through the use of vendor portals.
- Develop vendor resources to address common questions and concerns. AI tools such as customer service bots may prove useful here.
- Encourage eInvoicing and performance/compliance data sharing to further optimize your P2P process end-to-end.
Make the Most of Your AP Vendor Relationships
They may not seem like natural bedfellows, but your accounts payable department and your vendors are a winning combination for building value for your business. By focusing on strong, honest, and collaborative relationships and investing in the right software tools, your AP team can slash costs, build value, and create opportunities to partner with your vendors for improved growth and innovation while achieving a maximum return on investment (ROI) on every purchase.
Get Stronger Supplier Relationships and More Value from Procurement Processes with PurchaseControl.Find Out How