Three Ways Accounts Payable is Impacting Your Entire Company
While it is tempting to think that accounts payable is simply “paying the bills,” this notion is actually unfounded.
There is a lot of benefit to be gained from thinking of accounts payable as more than paying vendor invoices. In reality, the way that your accounts payable team operates impacts your business in a way that extends far beyond what you might expect.
Here are three concrete ways that accounts payable impacts your entire company:
1. Vendor Service
Vendors are key stakeholders in the operations of any business. With accounts payable serving as the liaison between a company and its vendors, they serve as the stewards of a key relationship for the business.
A company that has built a relationship of trust with vendors benefits from high-quality service, more discounts, and flexibility in payments that enable working capital optimization.
On the other hand, a poorly managed vendor relationship can result in mediocre service, an inability to negotiate payment terms, and ultimately, inefficient capital allocation. Additionally, angry vendors don’t hesitate to go up the ladder in order to expedite late payments, and can quickly become a thorn in the side of your executive leadership team.
The way you pay your vendors can make a tremendous difference in the level of service that they provide to you, and ultimately the level of service you provide to your customers. Thinking strategically about how you process and pay invoices can help you establish build a maintain strong relationships with vendors that help move your business forward.
2. Cash Flow
The proficiency with which the AP team pays invoices maximizes the company’s potential short-term cash flow benefits.
Creating a longer average payable period increases the amount of cash the company has on hand for operations and capital expenditures, allowing the company to maximize the use of its trade credit by using every dollar in its cash flow as much as possible. Thus, the company is effectively able to borrow money from its vendors – for free.
Not only can the accounts payable team maximize capital usage, but it also has a unique opportunity to increase capital. Using corporate credit cards to pay vendor invoices can provide a significant, steady stream of income. Most credit cards have cash-back rebates of 0.5%. While that may seem trivial, an additional $5,000 in capital per $1 million in operating expenses can improve the performance of an organization.
3. Company Audits
Audits are a necessary evil for every company. How the audit experience goes for companies has a lot to do with how the accounts payable team records and maintains their vendor invoice data over the course of a year.
The easier it is to quickly locate required documentation, the less disrupted your company’s employees will be from focusing on their core responsibilities during an audit. If documentation is missing, misplaced or inaccurate, employees will get pulled away from their tasks that help the company perform more efficiently in order to locate or produce the document or correct the error.
How to an Ensure a Proactive Approach to Accounts Payable
In each of these areas, an accounts payable team can easily slip into reactivity. After a vendor relationship deteriorates, then they will step in and fix it. If cash flow dries up, then they find a way to expand the average payable period. If an audit occurs, then they work to retroactively clean up the paperwork and get organized. This method of operating accounts payable can hold a company back.
The simplest way to take a proactive approach to accounts payable is to automate the end-to-end process.
MineralTree Invoice-to-Pay enables companies to improve AP efficiency by 70%, and ultimately take a more strategic approach to paying vendors and optimizing cash flow. Additionally, MineralTree provides one central repository for quickly locating all invoice data, streamlining the process of locating documents during audits.