Payments Optimization: Mastering the Dance with Your Suppliers

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Guest post from Ernie Humphrey, CTP. Originally appeared on LinkedIn.

Advances in technology are motivating companies of all sizes to give accounts payable the attention it deserves. However, many companies still struggle in conquering the last mile of accounts payable, payments optimization. Historically, companies have paid suppliers by checks, and have not taken control over how and when the pay suppliers. Electronic payments offer companies lower payments processing cost than checks, and commercial cards offer lower payments processing costs in addition to rebates Why do many companies still pay the vast majority of suppliers via checks? What can your company do to take control of how and when you pay your suppliers?

Many companies fall prey to common myths around converting suppliers from checks to electronic payments. Five of the most common myths are as follows:

  1. Electronic payments risk exposures are more significant than those associated with checks.
  2. Customers are unwilling to convert to electronic payments.
  3. Inability to link remittance and payments.
  4. Lack of integration of remittance information with financial systems (ERP).
  5. Converting to electronic payments and managing and leveraging remittance information will require significant IT resources.

Each of these common myths, is just that, a myth, in today’s world. According to the 2017 AFP Fraud and Controls survey, checks have the highest incidence of actual or attempted fraud in 2016 at 75%, which is almost 30% higher than the next payments method which is wire transfers at 46%.

More and more companies are requesting electronic payments as they look to lower their accounts receivable processing costs and improve their cash management in knowing exactly when they will receive payments. Support of this assertion can be seen in the results of Paystream Advisors: 2017 Electronic Payments Report. Figure 2. below depicts supplier type requests. The same report also shares that the percentage of B2B payments processed that are check is down below 50% at 46%.

In terms of the other three myths mentioned above, technology can automate the collection and capture of remittances, technology can automate the linking of remittance and payment data, a rule-based engine automatically matches payment to open invoice, SaaS-based solutions result in minimal overhead for the IT department.

Once a company realizes that these inherent barriers do not exist, they need to be ready to do the payments dance with suppliers. This entails having the right systems, people and processes in place to affect desired electronic payment types efficiently, investing in building a mutually beneficial relationship with each supplier, and understanding how to effectively communicate to suppliers the value to them in accepting a given type of electronic payment (ACH, Wire, Commercial Card).

Seven supplier management best practices are:

  1. The On-boarding Process- make it a seamless experience.
  2. Educate Suppliers- the benefits of electronic document exchange, electronic payments, payment timing.
  3. Supplier Contracts- pay attention to terms including the payment terms (types and timing).
  4. Maintain Open Lines of Communication- minimize response times to supplier inquiries.
  5. Minimize the Asymmetry of Information between your employees and your suppliers
  6. Provide pro-active and consistent support
  7. Visibility into Communications with Suppliers- leverage technology that offers a 360 degree view of supplier relationships.

Five more best practices in overcoming ePayment adoption obstacles with suppliers are:

  1. Effective and efficient processes in place to support desired electronic payment types
  2. Being a good customer, including pro-active and timely communication
  3. Working with ePayables solution providers to help convert target suppliers on your behalf
  4. A multi-stage phase-out program
  5. Specifying an electronic payment method within supplier contracts

Four keys to being ready to dance with suppliers:

  1. Efficient processes and technology to support desired payment types.
  2. Efficient exchange of invoices and related remittance information.
  3. An environment of pro-active supplier relationship management.
  4. Understanding your supplier’s cost of accepting different payment types

Four effective dance moves to leverage with suppliers are as follows:

  1. Communicate an understanding your supplier’s cost of accepting payment types.
  2. Identify the conversion type that makes the most sense to a supplier- Check to ACH, Check to Commercial Card, etc.
  3. Communicate the benefits to converting to a desired payment type.
  4. Partner with ePayables solution providers to improve your dance moves or dance in your place when it makes sense.

Optimizing the value delivered by the accounts payable function means conquering the last mile of accounts payable, payments optimization. It is time to dance with your suppliers, impact your company’s bottom line, and in the process, impact the productivity of your AP team and the AR team of your suppliers.

If you want to learn more about mastering the payments dance with your suppliers you can experience the recording for a webinar focused on this very topic, Accounts Payable Done Right: Supplier Engagement & Payments Optimization .

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