This is actually a trick question…the answer depends on what you are spending your time discussing when you are with your suppliers. This is one of the topics we queried finance and Accounts Payable (AP) executives in our soon to be released Ardent Partner’s 2018 ‘State of ePayables’ market research report. The results were quite telling and, unfortunately, not what we hoped they’d be.
Problems with Payments Remains Too High
Similar to straight-through-processing (STP) with invoice approvals, payment processing should also be measured by how many exceptions or inquiries AP receives from suppliers after payments are made. You would expect this number to be extremely low as an invoice has already been vetted through the approval process prior to a payment being executed. Unfortunately, problems remain. The data from this years’ ‘State of ePayables’ research shows that fully 12% of all payments are contested by suppliers. This means over 1 in 10 invoices that have been submitted, approved, and had payment made to the supplier, have a problem that has necessitated communication with that supplier to address the situation. This amounts to doing double work on over 10% of all invoices that have already been approved. There is a big opportunity here for AP to automate this process and eliminate time-consuming (and duplicate) work that can be improved by automating the entire invoice approval and payment process.
Over 1/3 of Invoices Need Intervention
Another data point our upcoming report looks at is the overall invoice exception rate companies are experiencing in AP. Here, survey respondents indicated that, on average, 23.2% of invoices have a problem that results in their ending up in an exception handling queue, electronic or manual, and require attention from either AP staff, business unit personnel, suppliers, or frequently all three. Think about it, roughly 1 out of every 4 invoices processed by AP has a problem that requires manual, time-consuming intervention.
When you combine the 23% invoice exception handling rate along with the 12% contested payment rate, you end up with more than 1/3 of all invoices having a problem that typically necessitates the buying company having to contact a supplier in order to help resolve the issue. Inefficiencies such as these represent a great opportunity for AP to apply technology, improve operations, and advance supplier relationships.
I interviewed a company this week for an upcoming ePayables research study, and we discussed their transformation from a manual AP department to an automated one. The company has hundreds of locations around the US and processes almost 15,000 invoices monthly. Prior to automating AP, as you would expect, they were dealing with huge amounts of paper and corresponding amounts of inquiries to AP from suppliers checking on payment status. After automating, one of the biggest areas of improvement they achieved was the over 50% reduction in supplier inquiries to AP because invoices were now getting paid on time. Additionally, by implementing a self-service supplier portal, they empowered their suppliers to check on payment status without having to pick up the phone or send an email and await a response. The result was their suppliers are now happier and AP can focus on other, more strategic tasks. Additionally, this company is now able to spend time collaborating with their suppliers rather than tracking down payment issues.
How Much is Too Much?
So now back to the original question I raised about spending time with your suppliers. Time spent with your suppliers is extremely important, but it has to be the right kind of time and conversations. Spending hours communicating on the phone or via email with your suppliers discussing invoicing or payment issues is not value added to either of your organizations. Time spent collaborating with your suppliers on ways to lower costs, improve product or service delivery times, exchanging ideas for product enhancements; now these are the type of conversations you should be spending time on with your suppliers. Finding ways to partner with them to build stronger, more collaborative, more symbiotic relationships – this is how you ideally want to spend your time with suppliers. Look around, the most successful organizations are the ones with the most efficient and collaborative supply chains.
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