I Spy…A Glimpse of Payables Optimization
On a recent trip overseas, my daughters and I partook in a game of “I Spy” to pass time on a long train ride between cities. For those with small children and unfamiliar with I Spy, there’s a few things to distract the little ones better from boredom than this classic game.
Funny enough, the game of I Spy made me think why I still see companies struggling with implementing clearly needed improvements in their robust payables processes.
So what gives? Why do companies still refrain from fully optimizing their payables…and why am I thinking of work while on vacation?
Is executive buy-in missing? Is it change management, or the specter of change management the cause of inaction? Are companies simply satisfied with the status quo? The list invariably goes on.
I get it. We’re all extremely busy and taking time away from our day jobs to understand true payables optimization, let alone committing to implement such a project can seem unrealistic at best. However, there are reasons to be optimistic. Companies are pursuing this journey and realizing tremendous value by optimizing payables.
So, let’s take step back. What is this payables optimization that I’m speaking of? It is basically the union of invoicing, working capital and payment processes where value to organizations are maximized via invoice automation to enable working-capital strategies that conclude with electronic payments to your suppliers.
To understand this concept better, let’s briefly highlight these three areas:
For those already ahead of the game, you understand that invoicing is the critical path for optimization and there is much to be gained from automating this process. The quicker an invoice is approved, the quicker buyers and suppliers gain value. Not only are invoice processing costs reduced, but better visibility and forecasting is a shared benefit.
Working Capital & Discounts
As far as working capital is concerned, companies are typically faced with inconsistent payment terms. These terms are all over the place and often quite rigid especially regarding discounts. Companies need help in managing payment terms and yearn to be able to take advantage of discounts at any point until that invoice is due.
At the end of the day, companies need to have a Working Capital Strategy. It may be DPO extension, it may be discounts, or net terms. They’re all good. As an organization, you have to go through what’s most important to you.
Regarding payments, this is often an overlooked processes within the greater P2P strategy. What’s the point in automating a buying and invoicing process and ultimately writing a paper check? It doesn’t make sense cutting a paper check and also being responsible for the storing of sensitive bank account information internally.
By removing supplier bank account information from the buyer’s IT environment, a significant fraud and risk exposure is removed entirely. Removing the paper checks and incorporating an electronic payment process allows for rich remittance detail and real-time visibility into the payment status. Rich remittance and visibility is gold for suppliers.
Speaking of suppliers, supplier adoption is critical to the success of this kind of payables optimization initiative. If your suppliers do not participate, your efforts to monetize these great plans will not come to fruition. It would be shame to not realize the value all of the great work around invoice automation, discounting, pay terms optimization, SCF (Supply Chain Finance), etc. if suppliers are not on-board.
Their success is your success!
However, one must not also forget about the overall buying process. Sourcing and buying it right on the front end, enables you to ultimately pay it right on the backend.
With a keen focus on the right payments strategy that aligns with your buying process, I also believe that you can spy with your little eye a wealth of value and greater opportunities for your company.