How Visibility in AP Enables Treasurers and Controllers to Keep Wall Street Happy

Controllers

After the most recent recession, we began to observe a change in the advice coming from some large Analyst firms. The phrase “cash is king” took on greater meaning. Buying organizations is now more likely to be encouraged to extend standard payment terms, as financial markets place value on seeing more cash reserves and longer Days Payable Outstanding (DPO). I bet you know a customer that has extended their terms …

This has trickled down to Esker, as we’ve noticed a trend in our accounts payable (AP) automation projects. Customers want visibility for the treasurer and controller to manage cash more effectively. Customers are asking for a dashboard that shows invoices approaching the date where pre-negotiated discounts will be lost. The dashboards also provide the ability to see invoices that appear to be taking too long compared to average cycle times.

There’s plenty of value in ensuring strategic suppliers get paid so that your organization does not end up on credit hold and you do not lose any production time due to raw materials not being shipped. This happened to a client in the Midwest prior to automation. The recession lead to greater lending scrutiny and it became harder for small suppliers to access cash. Those small suppliers may also be important players in your supply chain. Our clients are excited about safeguards that help ensure they’re able to capture standard discounts such as 2% 10 net 30. Recently, Parts Town — a supplier of OEM restaurant equipment parts — confirmed they’re on track to double their captured payments inside a year.

The concept of paying suppliers early in return for dynamic discounts has moved from a pipe dream to a mainstream idea. For that reason we partner with Taulia – The Supply Chain Finance Company. As Buyers extend their payment terms (e.g. 30-90 days) there is a carrot they can offer, suppliers can be paid on the approval date and not the invoice due date. The faster the invoice can be approved the more opportunity the Treasurer has to offer the supplier payment earlier in return for a discount.

This is why institutes like IOFM are reflecting that the c-suite have a new perspective on the AP group. AP has historically been a tough place to work with little love from suppliers and other departments. Although unfair, “You people don’t pay suppliers on time,” was a common critique.

According to IOFM, 58% view AP as a critical component of doing business, while only 20% see AP as low value department. Controllers are taking more interest in procure-to-pay (P2P) automation solutions as IOFM also reports that 22% of controllers see improved cash management as the greatest benefit.

To be frank, in the past, AP automation was predominantly justified by FTE reduction and lower paper costs, but now the demand for visibility and need for better cash management rank in the top three project drivers. This makes sense, as many of our clients are preparing major IT initiatives and acquisitions which require cash.

Clients tell us greater visibility will expose the root causes behind an invoice not being paid on time (e.g., a cultural issue of non-PO “mavericks,” a missing PO number from the supplier, etc.). Or sometimes, it’s simply because there is no centralized tool for requesting the purchase of goods and services, or the tool in the ERP system is too clunky or complex, making it easier to whip out a credit card and make a non-PO purchase. Some of our customers have enforced “no PO, no Pay” strategies in combination with Esker technology that makes it easy to buy goods and services in a manner that doesn’t leave AP scrambling to work out who purchased from the supplier. The treasurer is aware of the spend and can plan cash flows proactively.

According to IOFM, “best-in-class” buyers pay within 3.8 days, “average” buyers achieve 9.7 days and “laggards” pay in 20.8 days. It’s easy to see that, unless you have a best-in-class process, you are probably missing pre-negotiated discounts, such as getting a 2% discount for paying in a 10-day window.

Visibility includes giving the financial officers the ability to capture pre-arranged discounts, encouraging suppliers with more early payment opportunities, and understanding where spend is going.

On a recent call, a customer explained their goal is to process all PO invoices in 24 hours and non-PO invoice within five days. This makes sense; however, 47% of AP’s time is currently spent on data entry and 13% on filing invoices.

Today, AP has the means to provide value that the c-suite wants and financial markets react well to. But there’s a catch. They cannot free up cash, offer supply chain financing, analyze spend patterns and establish corporate bulk discounts because 60% of their time is tied to data entry, hunting for approvers and calling suppliers back to advise when they will be paid.

Take a look at how Esker and Taulia have been helping buyers to cut invoice processing times by as much as 65%, capturing millions in extra discounts and helping suppliers gain easier access to cash.

To learn more join us for our webinar on September 6th!

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Daniel Reeve

Dan Reeve has been with Esker for 18 years. As Sales Director he helps companies streamline and improve visibility across order to cash and procure to pay. Transforming customer service and helping companies utilize digital transformation in order to compete via service/customer loyalty. For P2P it means accelerating invoice approval, paying suppliers faster, freeing up cash flow and leveraging supply chain finance opportunities.

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