How Improvements in Accounts Payable Processes Can Strengthen The Supply Chain
Accounts Payable (AP) functions are responsible for far more than just sending and receiving invoices. The digitisation of Accounts Payable and resultant access to real-time financial data means it’s fast becoming a goldmine of strategic data. Not only this, but effective AP functions are vital to a healthy supply chain.
Supply chain disruptions can cause a massive 62% loss in finances, affecting everything from the ability to maintain trading and business reputation. In this article, we explore how relationships between buyers and suppliers have changed over recent years, the benefits that effective AP processes have on supply chain management, and the rise of Supply Chain Financing. Read on to find out more.
The Important Relationship Between Accounts Payable (AP) and Supply Chain Management
While typically thought of as separate entities, Accounts Payable and Supply Chain Management (SCM) have lots of overlap. SCM oversees the process of sourcing, procuring, and delivering goods or services from suppliers to customers. This involves managing relationships with suppliers, optimising inventory levels, and coordinating transportation.
Accounts Payable, on the other hand, represents the money a company owes to its suppliers for goods or services received but not yet paid for. AP is responsible for a company’s cash flow management and ensuring the correct processing of invoices and payments.
AP has a highly critical role to play in supply chain management. Effective Accounts Payable processes are vital to ensuring that suppliers are paid correctly and on time, which helps maintain positive supplier relationships and business continuity. Why is this important? Suppliers can make or break whether you have the goods needed to continue to trade, so keeping them happy is intrinsic to the success of an organisation.
The Recent Power Shift Between Suppliers and Buyers
Over recent years, factors such as globalisation, technological advancements, and changing consumer preferences have led to a shift in the power dynamic between buyers and suppliers. In the past, each party would serve their own interests and buyers would generally have the upper hand. But today, things have evened out and there’s now much more of a focus on collaboration and buyer/supplier partnerships.
New technologies and digitisation have increased transparency, enabling buyers and suppliers to share information and communicate more easily. What’s more, buyers no longer view their relationships with suppliers as transactional. Today, buyers put a greater emphasis on collaboration and view suppliers as strategic partners in helping them achieve long-term business goals.
Changing consumer habits are also having an effect on the supply chain. As consumers become more aware of the responsibility for brands to ‘go green’, buyers are looking for suppliers with sustainable products and practices, leaning on them to reach ESG targets. According to DDC, concerns about supply chain sustainability and corporate practices are on the rise in 2023.
Finally, power dynamics between buyers and suppliers are quickly shifting. Gone are the days of buyers pushing one-sided terms and conditions onto suppliers. With the disruption to the global economy, suppliers of in-demand products now have more bargaining power. Parties on both sides of the supply chain must find a way to work together effectively.
The Benefits Of Effective AP Processes On Supply Chain Management
Accounts Payable teams have a huge influence on supplier relationships, and their effectiveness or ineffectiveness can drastically impact suppliers’ opinions of an organisation. A failure to meet standard payment terms or having an error-prone payment process has the potential to disrupt an entire supply chain.
Only 6% of companies report full visibility on their supply chain. Digitisation and automation of AP processes can help businesses to accurately track what is owed to suppliers, improve communication and speed up transactions – in turn, strengthening supplier relationships.
Effective AP processes can lead to several benefits in Supply Chain Management, including:
Improved cash flow
An efficient accounts payable process ensures that suppliers can receive payment for their goods and services quickly and accurately, which can help them maintain positive cash flow. Timely payment also guarantees a steady and constant supply of goods and services for the buyer.
Better supplier relationships
When suppliers receive timely payments and correct, contextualised information about their invoices, they are more likely to view the buyer as a responsible and trustworthy partner. Increased reliability can lead to better communication and collaboration between the two parties, which will improve the quality of the goods and services provided.
Reduced errors and disputes
Efficient and well-oiled AP practices can reduce the likelihood of disputes or errors, which can often cause delays and disruption within the supply chain.
Increased visibility and control over spend
By streamlining AP processes through digitisation, buyers can gain greater visibility and control over their spending. This can help them make more informed decisions about purchasing and negotiating with suppliers, which can lead to cost savings and improved profitability.
A reliable Accounts Payable process can also lead to cost savings by taking advantage of early payment discounts and negotiating better payment terms with suppliers. Early payment discounts involve a buyer receiving money off their purchase if they pay a supplier early, saving costs and boosting profitability.
Overall, effective AP processes can lead to better supply chain performance, improved efficiency, and reduced costs, which are essential for driving growth and achieving long-term success.
The Rise Of Supply Chain Financing
Supply Chain Financing (SCF) helps businesses to achieve one primary goal: increase profits. It’s a financial strategy that enables companies to optimise their cash flow by extending payment terms to their suppliers while allowing suppliers to receive early payment on their invoices via third-party funding. According to the World Supply Chain Finance Report 2022, supply chain finance fund volumes increased by 38% to $1.8bn in 2021.
There are obvious advantages of Supply Chain Financing for both buyers and suppliers. For suppliers, early payment reduces days sales outstanding (DSO), supports healthy balance sheets, and improves their credit rating.
For buyers, SCF allows them to access early payment discounts, while extending days payable outstanding (DPO) and delaying payment until the invoice due date. This improves their working capital position, reduces supply chain risk, and strengthens supplier relationships.
How Digitisation of Accounts Payable Supports Supply Chain Management
The digitisation of Accounts Payable processes can significantly support supply chain management by streamlining the payment process, reducing errors, and providing better visibility over invoices and payments.
When AP processes are manual or paper-based, there is often a high risk of human error, such as incorrect data entry or lost invoices. These mistakes can delay the payment process, leading to late payment fees or strained supplier relationships.
By automating AP and introducing e-invoicing, companies can simplify the payment process and increase both the speed and accuracy of transactions, which maintains good supplier relationships and supports supply chain financing initiatives. Plus, reducing manual tasks provides AP teams with more time to focus on business-critical tasks that will drive growth across the organisation.
Digitisation also improves visibility over bills and payments, which is essential for supply chain management. By modernising accounts payable functions, companies can track invoices in real time, which can help identify bottlenecks in the payment process and allow for proactive management of cash flow. This visibility and control can also help identify opportunities for early payment discounts.
Real-time data access can also be used to provide insights into supplier performance and payment history. This data can be used by financing companies to make informed decisions about Supply Chain Financing options.
How Tungsten Network Can Help You Automate AP Processes For A Healthier Supply Chain
Tungsten Network is a global leader in helping businesses to achieve AP automation and successful e-invoicing adoption. We can provide expert guidance to help your business streamline Accounts Payable processes, in turn improving supplier/buyer relationships.
Get in touch today to learn more.