How to Remedy Late-Paying Organizations

Despite strong corporate profits in 2019, recent instability in global markets after a worldwide pandemic has made many finance leaders revenue-conscious. This revenue focus is often expressed in a “sales at all cost” strategy bringing on new customers at a rapid pace. But from the CFO perspective maximizing cash flow doesn’t necessarily mean making more sales; it means making profitable sales to customers who pay invoices on time.

Late paying customers may be more harmful than many would think, impacting the entire business including short-term cash flow stability and long-term bottom line results. With the various digitally automated AP solutions available today, companies no longer need to suffer from late payments.

Paper is the Root Cause

A paper-based accounts payable process is doomed to be slow and error-prone. Paper invoices get stuck on people’s desks or drawers, worse forgotten and never paid. Even when receiving invoices as a pdf file via email these are often printed, stamped and signed before handed over to the accounts payable department for scanning and filing. This situation creates another risk of delay or misplacement, not to mention all the paper checks used in B2B payments. In today’s digital world it’s surprising to learn that 49 percent of companies still pay with paper checks, according to a recent PayStream Advisors report.

The list of issues in a paper-based AP process can be extensive:

• Late or lost payments leading to fees and charges from vendors as well as missed discount opportunities.
• Lack of control and visibility of outstanding invoices leading to unclear accrual, analyzing cash flow, and forecast reporting.
• Fraudulent or inaccurate invoices slipping through the process, or fraud occurring when payments are made by paper checks, means a risk of direct money loss for the business.
• Resource and time-consuming invoice processing mean a costly AP function that does not contribute to the business success.

Touchless AP solutions focused on automation, where the entire invoice workflow is digitized, help remedy late payments. 

Protecting the Supply Chain and Relationships With Suppliers

If your organization struggles to pay suppliers in time, it is essential to understand how this affects your counterpart. Lost or late payments will imply cash flow issues, credit risks, and revenue loss. To prevent this, the supplier organization will engage their sales, accounts receivable and credit departments to ensure they get paid. 

If you’re on the buying side and not complying with payment terms, you risk damaging the relationship with suppliers. This lack of trust may have the credit team stop another transaction with your company and ultimately disrupt important supplies chain processes. In some cases the credit team can agree on special terms for a purchase, using real-time credit scoring tools or asking for partial payments up front. But this should be considered a short-term, band-aid solution to the problem of late payments, not solving the cause of a lengthy accounts payable process.

The Importance of Understanding Contracts

Paying suppliers on time is not just a kind gesture or common business sense. In most cases, there is a contract in place defining the payment terms, including accepted payment methods, payment schedules, and late payment policies. It is imperative that finance and accounts payable teams work closely with their colleagues in procurement and legal departments to ensure everyone understands the liabilities to suppliers. This way you can also ensure that the contracted terms are in line with the organization’s internal processes so that compliance with the contract is not at risk.

Contract terms do not necessarily mean a threat or charge. Companies with good supplier relationships, high credit scores, and positive payment history have great opportunities to negotiate payment terms that include early payment discounts. This way, an active accounts payable process and fast payment can, in fact, become a revenue generator for the business. 

Standardize the AP Process

To get away from lengthy, error-prone and manual invoice processing companies need to centralize and standardize the entire accounts payable process from invoice receipt to final booking and payment. Today there are digital AP solutions for companies of all sizes offering the tools, security, and workflows needed to speed up the process and pay suppliers in time.

Because an AP automation solution works as a digital archive, the accounts payable department has full control of outstanding invoices at any time. The tool helps prioritize invoices close to the due date, send automatic reminders to approvers in the organization and provide reporting on where process bottlenecks appear. This visibility helps AP get back in the front seat and stay on top of supplier payments.

In addition to this increased visibility and control, the automated AP solutions enable faster processing of invoices by automating some, or all, steps of the invoice management. A modern solution can, for example, automatically match invoices to purchase orders, route an invoice to the correct approver and code costs to the right G/L account according to pre-set business rules. This way the accounts payable department can shorten invoice processing lead times significantly.

The Benefits of Solid Accounts Payable Practices

Standardizing, streamlining and automating the accounts payable process is an excellent remedy for late-paying organizations. The apparent wins are happy suppliers, eliminated late payment fees, and potential early payment discounts. 

But there are other equally important benefits of implementing a reliable, digital and automated accounts payable process, including:

• Elimination of manual work reducing the risk for human errors
• Greater financial visibility enabling more accurate cash flow, accrual and forecast reporting
• Increased automation of the AP process freeing up time for more strategic work
• All invoice data in one digital system supports the timely month-end closing of books, financial reporting and audit processes.

It is crucial that the entire organization - not only the accounts payable department - understand that late supplier payments seriously harm the business and that putting an end to these is a priority. Digitization and automation of the accounts payable process is a crucial first step to remedy late payments. This step will stop the delays and add benefits to the business as a whole if the organization works together towards the same goal of modernizing the internal processes.