When it comes to accounts payable automation, many businesses focus on operational improvements such as reduced costs and faster cycle times.
These are certainly compelling. But businesses can achieve four times the financial benefit of operational improvements on their own by migrating to electronic payments to suppliers and optimizing working capital as part of their automation efforts.
In fact, the financial benefits achieved by optimizing working capital with a payment solution such as the one offered by ACOM Solutions can more than offset the overhead of an accounts payable department – transforming the accounts payable function from a cost center into a profit center.
Transform your Accounts Payable Department into a Profit Center
Here are four steps for transforming your accounts payable department into a profit center in 2019:
Step 1: Review your current environment
The first step to transforming your accounts payable department into a profit center is to conduct a comprehensive analysis of your organization’s spend file to determine the total number of suppliers, the percentage of suppliers currently paid via check, card, ACH, wire and international, and the number of invoices and total amount of spend represented by each payment type.
A payment solutions provider can use this data, along with card network data, historical enrollment statistics and information from other sources, to segment suppliers based on their likelihood of accepting card payments.
Step 2: Leverage multiple payment methods
The next step to transforming your accounts payable department into a profit center is leverage multiple methods for paying suppliers.
The goal is to capture revenue opportunities and reduce costs across your vendor master file. Partner with a payment solutions provider that takes a holistic approach to payments (e.g. check, card, ACH, wire and international). And remember that while one payment type is unlikely to meet the needs of all your suppliers, buyers have more leverage than they realize regarding their payment method. Studies show that suppliers are much more likely to accept payment methods mandated by a buyer.
Consider mandating payment methods for different supplier segments, with alternative payment methods available for suppliers with specific needs.
Step 3: Earn revenue for paying your bills
Card programs and supply chain finance programs enable accounts payable departments to earn revenue for paying their bills. Card programs such as virtual cards and e-payables enable businesses to pay their invoices using a card.
Card programs replace costly and risky checks to suppliers. Importantly, the buyer earns revenue share, rebates or rewards based on their card spend. Supply chain finance programs also provide revenue opportunities to accounts payable departments.
Supply chain finance is a line of credit that pays suppliers early without impacting the buyer’s cash on hand. In this scenario, the supplier reduces their DSO while the buyer maintains their DPO. Moreover, the buyer receives a share of the fee received by the third-party that finances the transaction.
Step 4: Capture more early payment discounts
Automating payments to suppliers enables new working capital opportunities. Chief among them is dynamic discounting, which accelerates payment of approved invoices using the buyer’s funds.
The earlier the payment, the greater the discount. Suppliers benefit from accelerated cash flow. Buyers receive discounts on the invoice-due amount. Consider that a discount of 2.75 percent on an invoice translates into an annual percentage rate of 38.6 percent.
That’s pretty enticing for many businesses. Nearly one-quarter of senior finance executives track discounts captured, IOFM reports.
The downside for buyers? Dynamic discounting impacts their DPO as well as their cash flow, and it complicated without an automated solution such as the one from ACOM Solutions.
These four steps will help transform your accounts payable department into a profit center in 2019. But they all require that you automate your payments to suppliers.