The Supplier Payment Process: How To Correct the Issue of Late Payments
Delayed supplier payment can lead to problems. Learn what steps businesses can take, including automation, to improve the supplier payment process.
Businesses often delay payments to suppliers for various reasons. And this practice seems to become more common over the years. However, this has become a challenge for suppliers and can potentially affect supplier-business relationships, leading to other problems. Faye Wang, Regional Accounting Director, Tipalti, shares steps businesses can take, including automation, to improve the supplier payment process.
Delaying payments to suppliers has long been a practice at many businesses in the U.S. This approach to finances is often seen as a means of extending working capital for operations. That much has not changed over the years, as delayed payments are only becoming more and more common.
One survey by the Hackett Group found that the 1,000 largest companies in the U.S. drastically slowed payment time to suppliers in 2020. In many cases, smaller suppliers took the brunt of financial woes caused by withholding payments. In fact, late payments have become one of the biggest challenges for suppliers. In the 2020 fiscal year, it took U.S. companies upward of 62 days on average to pay their suppliers — an increase of 7.6% from the previous year.
Although recent economic uncertainty has contributed to the problem, businesses not paying invoices on time is generally due to manual and inherently flawed internal accounts payable processes. It often takes longer for the finance department to complete such numerous and specialized tasks without automated payment solutions. Besides, manual processes are also prone to reporting difficulties, document control mismanagement, and plain old human error, which can all impede the supplier payment process flow and delay invoice payments.
Automating the supplier payment process can, naturally, correct many of these inefficiencies. Suppliers then receive payments on time, which in and of itself is essential to maintaining cash flow. Improved cash flow, especially for smaller suppliers, decreases the chances of closure and ensures your business does not get left in the lurch.
See More: How to Automate Repetitive IT Tasks and Drive More Business Value
Needing to source and secure a new supplier can be problematic, as it can lead to delivery delays, stock shortages, and price increases. Payment automation also allows for greater flexibility in supplier payment. Should a supplier choose to be paid early on a particular invoice, the portal provides the functionality with no change to your organization’s working capital.
Improving the Supplier Payment Process
Digital connectivity has changed how everyone thinks about the payment process, and supplier payments are no different. There is now an expectation for a seamless, usually digital experience from the moment a supplier issues an invoice for payment. It just makes good business sense to offer such an option and deliver results in good time.
Automation cannot improve the supplier payment process on its own, of course. It is important to look at all the opportunities to simplify transactions and position accounts payable as more than just a necessary part of conducting business. Every invoice has the possibility of improving the return on business and reaching your organization’s goals.
The question then remains, where exactly should your business focus its attention when trying to improve the supplier payment process? The following are often the best places to start:
- Discuss early payment options
At many suppliers and vendors, early payment will come with what is known as an early payment discount. It is one of the more effective supplier payment solutions to improve control over invoices, reduce supplier late payment time, and accelerate overall cash flow.
Though the discount is often minimal — usually 2% when paid by day 10 or 1% when paid by day 20 — it is an option worth discussing with suppliers. Having this conversation early on can help increase savings over time while reducing the cost of goods sold.
- Choose automation solutions wisely
Payment automation solutions can do more than automate the payment process and ensure you’re paying invoices on time. The right technology can also serve as a supplier onboarding tool for businesses and provide additional guidance for vendors on the supplier payment process and the most efficient payment methods available.
Most importantly, when you utilize payment automation, suppliers gain greater visibility into transactions. No longer will they need to inquire about payment status. A self-service payment automation portal offers such functionality, allowing suppliers to forecast cash flow better and feel more at ease, thus more willing to maintain the working relationship.
See More: Top Ways to Kickstart Your Automation Journey & Stay Ahead of the Curve
- Reevaluate financial strategies regularly
It is no secret that paying invoices on time eliminates late fees and circumvents any potential fallout with suppliers, thereby weakening the business-supplier relationship, if not destroying it altogether. However, payments have become strategic focuses of the finance functions for most businesses, as they offer improved control over cash flow and ways to optimize cash positions.
Do your current financial strategies include a supplier payment component? Let us say, for example, that you are looking to reduce your expenses. Taking advantage of early payment discounts can help in reaching that objective. After all, taking the time to reevaluate your financial strategies and ensure proper supplier payments improves your supplier relationship and ensures your finances are accounted for and allotted wisely.
Payment automation is not just functionality for the ecommerce space. It is what every individual is now looking for, and that includes transactions of the B2B variety.
The convenience of payment automation can improve the user experience, as simply paying invoices on time has many advantages for businesses and suppliers alike. Now is the time to make payments part of your financial strategy. Especially when cash flow and cost reductions are of concern, you can rest easy knowing payments are fully within your control.
What steps have you taken to improve the supplier payment process? Share with us on Facebook, Twitter, and LinkedIn.
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