Brands, merchants, wholesaler, and other suppliers are the lifeblood of any retailer’s business. Recent supply chain disruptions and sourcing constraints have only reinforced this point as retailers face high out-of-stock rates, extended order delays and unhappy customers quick to look elsewhere. At the same time, record inflation is contributing to higher costs and lower purchasing power for both retailers and consumers.
In this environment, the prospect of late or missed supplier payments adds a new element of risk that could further disrupt your business. Improving the ability to pay suppliers on time builds better relationships, improves the ability to negotiate discounts, and minimizes the chance of additional supply chain issues. Suppliers not only depend on cash flow to run their businesses, but also to produce more supplies, so faster payment can help alleviate supply bottlenecks.
Even when retailers want to pay their suppliers quickly, the inefficiencies of manual AP and payment processes can get in their way. Accounts payable departments that manually prepare checks have to print them, chase down signatures, and then stuff, seal and send them by mail — which by itself can add several days to the process. Moreover, manual, paper-based processes limit visibility for both retailers and suppliers, leading to more inquiries from suppliers to retailer AP teams already stretched thin.
Creating Mutual Value
To address these issues, many retailers are using software to automate AP process, and payment optimization services to support those efforts. These services might involve enrolling suppliers in e-payments and managing their payment details, disbursing payments and handling supplier inquiries and payment issues.
The combination of AP automation software and payment optimization services can reduce the administrative burden of your AP team, minimize the risk of payment and invoice fraud and reducing operating costs. It can also add value in the form of expedited supplier payments, streamlined workflows and reconciliation and an improved user experience.
The right approach to AP automation and optimizing supplier payments can benefit both parties in multiple ways:
- Better cash flow. By speeding up supplier payments through automated workflows and e-payments, you can pay them on a timely basis while balance cash flow needs on both ends. This also gives you the ability to capture more early payment discounts.
- Preferred payment methods. Rather than forcing suppliers to accept a specific payment method, offering different payment types and working with them to implement a method that works for them benefits both sides.
- Self-serve visibility. Many AP solution providers offer portals where suppliers can check the status of invoices and payments without having to contact your AP team. While this is a great start, they find even more value from portals with a single, consolidated view that lets them update payment details, view and download remittance data and review KPIs such as DSO and Credits Outstanding.
- Quicker response times. Your AP team juggles many tasks and may not be able to respond to suppliers quickly. A payment service provider can offer a dedicated, in-house team to answer supplier queries or respond to issues.
- Easy reconciliation. Suppliers receive an email with remittance details when payment is issued and can access and download that information from the portal as well, making reconciliation easy.
- Fraud protection. AP automation solutions employ the latest security features and business process controls to help prevent fraud for both retailers and suppliers. According to the 2022 AFP Payments Control and Fraud Survey Report, 71% of organizations were victims of payment fraud attacks/attempts in 2021. And 58% say their AP department was the target of email scams.
- Cash back. Some AP automation solutions include a virtual card option that delivers rebates to pay suppliers. These rebates add up quickly, producing a new revenue stream that can lower the TCO. While virtual cards carry a small cost to suppliers, they guarantee payment and funds are available within one day compared to two days for ACH and even longer for checks. They are also one of the most secure payment methods according to the AFP report.
With today’s volatile supply chains, retailers need every advantage. Supplier payments that happen quickly and provide a better overall supplier experience can help transform the relationship and create a win-win. Suppliers get improved cash flow and retailers secure the consistent flow of goods needed to run and grow their businesses.
Matt Friend is Vice President, Product and Program Management at MineralTree