How to Optimize and Improve the Vendor or Supplier Payment Process

As businesses get more complex and grow in scale, the vendor payments become more intricate, time-consuming, and important. Not only are supplier payments crucial to getting the raw materials needed to run a company, but they also encompass utility bills, office space rent costs, and so much more. 

If an organization submits a supplier payment late or incorrectly, it could have major downstream implications on the business’s ability to function. The role of the accounts payable team is to monitor and fulfill all payments to suppliers. They must verify that the invoices are correct, that goods or services have been received, and that the payments are submitted according to the agreed-upon payment schedule between the vendor and the purchasing organization.

Managing payments to suppliers is no easy feat, but it’s perhaps one of the most critical business operations that takes place on a daily basis – no matter the industry, region, or business type. Luckily for AP teams around the world, new tools and technologies have been developed to make it easier to efficiently manage the vendor payments process. 

What is a Vendor (or Supplier) Payment?

A Vendor Payment, also known as a Supplier Payment, marks the final stage of the procure to pay cycle. It involves a company disbursing funds to an external vendor for goods or services rendered. Supplier payments can be automated through online platforms, streamlining and securing the transaction process.

The complete vendor payments process or supplier payments process is much more than simply sending a check in the mail or submitting a wire transfer through your business bank account. The disbursement of funds is the final step in the process, but before that, businesses must conduct their due diligence to ensure that payments to suppliers are warranted, accurate, and timely.

As a quick refresher, the typical supplier payments process will look something like this:

1. Vendors will send an invoice to your business for the goods or services they have provided. Vendor invoice management starts here, requiring a careful eye from your AP team.
2. The AP team within your finance department should review the invoice, validate that the goods or services have been received, and verify that the amount owed is correct. If everything looks right, they will approve the AP invoice for payment.
3. After an invoice is approved, the payment to suppliers can be submitted according to the payment terms you have with that supplier. Most commonly, N30 payment terms mean that an invoice must be paid within 30 days.

It seems simple on the surface, but there are a lot of checks and balances that should be built into the process before submitting a supplier payment. Until recent years, every step was dependent on the AP team; they had to manually check invoices, match the data to warehouse receipts, write checks on paper, put them on a supervisor’s desk to sign before sending, and get them in the mail on the right cycle to reach the vendor in time. Now, through the use of technology, many of these checks and balances can be automated, resulting in lower error rates, faster payment timelines, and a multitude of other benefits.

The Problem(s) with Manual Payments to Suppliers

In order to understand the impact that a technology-enhanced supplier payment process or vendor payment process can have on an organization, we must first examine the pain points that are so often seen in traditional vendor payment methods. If everything is done by hand and dependent on humans, some of the biggest problems are: 

Delayed Delivery Times

Many vendors offer discounts for early supplier payments, creating an easy money-saving tactic for their customers. However, on the other side of that coin, most impose late fees if they don’t receive a payment by its due date. With traditional supplier payment processes or vendor payment processing workflows, there are many opportunities for payments to get delayed. It can be as simple as a paper invoice getting stuck in the wrong pile on an approver’s desk and going unnoticed for a few weeks. By the time that individual finds it, approves the invoice, and sends it through the rest of the process, it’s sure to already have incurred a late fee.

Disjointed Systems

Anyone who has ever worked in AP knows the headache of trying to match an invoice to the procurement system if the purchasing team input the information into the system incorrectly. If your organization uses disconnected and outdated systems that cannot communicate with other systems throughout the company, you’ll notice a massive time loss when trying to unravel invoice mistakes or incorrect data entry.

Fraud Risks

There’s always fraud risk associated with submitting a payment to suppliers/vendors, but manual payment processes increase that risk exponentially. Manual steps make it easier for numbers to be adjusted incorrectly, vendors to be entirely made up by fraudsters, and duplicate payments to slip through the cracks. 

Human Error

Even if incorrect supplier payments are not made with bad intentions, human error can negatively impact the cash reserves you have on hand and available. Perhaps the person writing the check wrote the amount wrong and the approver didn’t catch it. Or, maybe, an invoice wasn’t processed on time, resulting in a late fee. These errors can add up, wreaking havoc on an organization’s liquidity and bottom line.

Non-Optimized Payment Strategies

If you go global or work with suppliers in different countries, you’ll need to factor in currency exchange rates when making supplier payments. The right supplier payment strategies can reduce the burden of ever-moving exchange rates, but this isn’t the only consideration to factor in. Sending batch payments can reduce processing fees, and using banks with high transfer limits will make it less costly to send large sums. It’s challenging to get all these small details right if you rely on manual payment processes.

Top Tips to Streamline the Vendor Payments Process 

If you’ve experienced one or more of the above pain points, it’s time to make a change. There are changes that can be made on the process side, but much of the room for opportunity exists within technology. With AP automation platforms like Nanonets, most AP functions can be streamlined, optimized, and automated, giving valuable time back to the employees you have in your organization. 

Depending on what your challenges are, use the below tips to create a new and improved supplier payments process:

Refresh Your AP Processes

Before implementing new technology, look at the AP processes you have in place now. Are there too many people involved? Can you trim “fat” or extra steps anywhere in the process? Is there an easier way to write and send the checks or wire transfers? Many businesses only have current processes in place because “this is how it’s always been done,” but once that mindset is released, you’ll find opportunities for improvement in the most unexpected places.

Invest in an All-Encompassing Supplier Payment Platform

There are too many AP platforms on the market today to miss out on the benefits of using one. Find a supplier payment platform that can communicate with the existing ERPs, CRMs, and business systems your organization uses, and you’ll start to see benefits instantly. These platforms can write and print checks, allow approval workflows to be completed within the tool itself, and automate the verification process needed for each invoice. Making a payment to suppliers gets a lot easier with the right tools.

Develop a Cohesive Onboarding Strategy

Before signing a contract with a new vendor, vet the company, the team you’ll partner with, and the goods they’ll provide to ensure you’re selecting the right vendor for your needs. When you start working with new suppliers, onboard them in a uniform way. You should have a predetermined payment structure that you generally use, dates that supplier payments are sent out each week or month, and an information collection process for each supplier so they are represented accurately in your systems. Do you have all the information you need for tax forms? What about customs forms if the supplier is international? Everything should be stored in one place – an AP platform – and your suppliers should know exactly what to expect from you throughout the duration of your partnership.

Automation, Automation, Automation

So many AP experts are stuck verifying invoices, chasing down approvals, and manually entering payment information. It’s the 21^st century; they should be developing new strategies to optimize every payment to suppliers, working with accounting to investigate potential fraud, and spending time building supplier relationships. The best way to ensure they have the time to do the true value-add work is by automating the mundane tasks – such as repetitive accounts payable reporting –  that eat away at their productivity on a daily basis. The right AP tool, paired with advanced account software, can validate invoice data, cross-check prior payments, create the check or wire transfer, and send it for approval all without human intervention. 

Looking Forward: AP Is Changing

The function of the accounts payable team has been slowly shifting for a while. The talented individuals who have spent their days ensuring that your organization makes correct and timely supplier payments or multilateral netting payments have much more to offer than data validation and signature-chasing. Equipping them with an improved process and advanced tools won’t just change their day-to-day, it will change your supplier relationships, expense management strategy, and the level of success your business can reach. 

These changes might take some time to catch on. Implementing new tools and adjusting how people do their jobs can be a tedious journey, but it always pays off. It starts now – don’t let your organization fall behind.