A common view of the Accounts Payable (AP) function sees it as a hidebound, bureaucratic, back-office necessity where the primary task is to protect the buying enterprise from suppliers. This is misplaced and, if possessed by AP staff and management, can operate as an explicit inhibitor to positive buyer/supplier relations.
In contrast, an AP function ‘on top of its game’ will likely have the supplier’s interests as much up front and center as those of the purchasing enterprise (both AP and the actual buyers). Trust matters. When buyers and suppliers have mutual trust and recognized self-interests which complement and work with each other, the impact magnifies. In effect AP, and especially with automated AP, acts as a lubricant – not as sand in the oil.
To identify which form of AP an enterprise deploys – conventional or supplier-interested – some apparently simple questions need asking. For example:
- do AP staff know anything about a given supplier?
- are buyers connected with AP staff?
- do buyers and AP operate together, with a holistic view, when selecting suppliers?
- is it easy to onboard new, possibly alternative, suppliers?
- are AP staff (and buyers) aware of, and have access to information about, contractual terms and supplier incentives – for example bulk purchase discounts and/or reductions for prompt payment?
- are suppliers made a part of the AP functions (for example by being able to submit invoices electronically – by email or via an AP portal)
- can suppliers ‘see’ where their invoices are in an enterprise’s purchasing system for payment?
- how are supplier questions about outstanding invoices handled by AP (and purchasing and operations)?
- is the invoice approval process within the buyer enterprise transparent, monitored and managed for timeliness?
- Is there a complete view – for finance, as well as buyers and AP – of the overall payments and due payments situation?
In addition to all of the above, one other pair of questions needs raising. Do AP staff understand:
- the positive importance of good, informed relations with suppliers?
- the negative effects when supplier relations go bad or are bad?
Why a whole view picture of suppliers is vital for AP staff?
Traditionally, as summarized above, AP is viewed as a back-office function – unsung, best left unheard from, and readily blame-able by both buyers and suppliers for ‘inaction’ or not assisting. Yet AP should be a constructive, value-adding function in medium and large enterprises. It should act as a gateway which ensures that what buyers order is paid for on time and to maximum advantage for the purchasing enterprise.
Maximum advantage for the purchaser should not mean blind exploitation of the supplier. A simple example evidences this. Some large enterprises used to adopt a specific payment policy for their SME suppliers. If registered as an SME in AP, invoices from those SME suppliers were paid within (say) 21 days – rather than the 30, 45, 60 or 90 days that large enterprise suppliers might receive. Why was such a policy adopted? SMEs tend not to provide products or services with volumes discounts. In addition, SMEs tend to be more financially constrained, especially by cash flow considerations. Paying SMEs earlier than would happen with larger enterprises created positive feedback: the supplier could operate knowing prompt payment would arrive and the purchasing enterprise obtained a reliable supply. There was an incentive to jump when the buyer was in urgent need and it generated much good will.
However, such an approach requires knowledge of the supplier. In turn, that demands that buyers and AP both incentivize and enable suppliers to provide the necessary information. Most of this is straightforward – business name, tax registration details, bank account details, size of business, etc. If all this enters an automated AP system then numerous actions can occur:
- automated early payment of SME invoices (in the above example) occurs with minimal AP staff involvement
- automated electronic transfers, which are faster and more reliable than mailing a check
- direct contact with supplier staff is available to AP staff (and vice versa) whenever disputes or resolution of a problem demands informed contact.
The similarity to CRM
A good automated AP system is similar to a good CRM system – just in reverse. This may seem counterintuitive. But it should not be. AP, working with purchasing, is as directly involved in creating a positive business environment as is sales and sales management.
In effect two major factors apply:
- there is a customer (the supplier) service aspect which AP traditionally does not perform (and too often is not encouraged to perform) in terms of communication and issue resolution
- poor supplier relations places operations at risk; if enterprises do not effectively recognize the needs of suppliers, they may execute on orders which in turn endangers delivery of repeatable results.
Few medium or large enterprise marketing and sales organizations believe they can operate without CRM. For constructive and responsive AP, a similar approach to CRM is needed – automated AP where the supplier is as much at the center as the purchasing enterprise.
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