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The Relationship Between Procurement and Accounts Payable: What Procurement Can Learn
The Relationship Between Procurement and Accounts Payable: What Procurement Can Learn From AP
At PaymentWorks we love procurement and accounts payable (AP) equally. We have amazing champions and customers in both areas. And our platform has strategic benefits to both functions.
Yet, we are constantly surprised that procurement and accounts payable–two seemingly made-for-each-other departments–don’t always appreciate all they do in support of each other.
So we thought we’d take a stab in this two part series at playing ‘counselor’ to this couple. In other words, we’re going to explain just how much they could learn from each other.
Let’s begin.
Current State of Accounts Payable
First, let’s face it. We live a world where procurement and all associated areas–supply chain, finance, accounts payable–are under constant scrutiny. The time of simply “cutting costs” and “negotiating supplier relationships” has come and gone.
Sure, procurement is often the first step in buying and driving down company costs. But increasingly, they are an internal service provider to multiple business units. They help with anything from risk reduction and mitigation to making sure suppliers get paid on time–so they can deliver on time.
Every step of the end-to-end, source-to-pay process is critical. However, “pay” can be one of the last areas to be considered when companies scrutinize their overall risk profiles.
Burnout across AP Teams
The growing workload of accounts payable teams has led to some pretty nasty mental and emotional consequences for the workers themselves.
AP managers and teams are experiencing exhaustion as a result of excessive workloads, lack of recognition, and the challenges of handling frequent employee turnover.
A recent poll by IOFM found that a significant 75% of AP teams have observed a surge in report processing. Moreover, they have been compelled to extend their working hours to cope with the added responsibilities.
At PaymentWorks, we speak with AP staff regularly. Here are just a few things they’ve had to say about the pressures they face in their jobs:
“It’s easily a 40 hr/week job just to answer phone calls and emails about vendor status.”
–AP Manager
“I got tricked by a fraudster. I was told if it happened again, I would be fired.”
–Vendor Desk Manager
“Every time I change vendor information, I feel like I have a grenade in my hand with the pin pulled.”
–AP Manager
Clearly, understanding from procurement teams and other departments about the critical role of AP teams is needed.
What Procurement Needs to Know About Accounts Payable
Accounts payable can be a material driver of efficiency and agility in many areas. And procurement needs to pay attention.
Reducing risk
AP is “the last mile” in a vendor relationship and transaction–the final finance check. Just think about everything that AP departments do. Here is a non-exhaustive rundown of their main responsibilities:
- Perform supplier onboarding
- Process invoices
- Protect companies against fraud by determining exactly when they can hit the send button on payment.
Vendor onboarding alone–while not the most glamorous process in the bunch–should qualify as a medal sport, at least from a cost avoidance and risk perspective.
For example, the typically ad hoc and tedious process of vendor onboarding involves verifying the legitimacy of suppliers. This may include conducting background checks, verifying contact information, and ensuring the vendor is registered and authorized to do business.
AP teams also continuously validate and monitor vendors to ensure they are still legitimate and active. Fraudsters may attempt to exploit dormant or inactive vendor accounts.
To sum up, the work of AP teams is essential in helping organizations avoid nightmare situations like fraudulent payments or hold-ups that will eventually cost more.
Fostering strong relationships with suppliers
AP teams are also critical to ensuring positive, productive supplier relationships. How? Typically, by doing some or all of the following:
- Establish and Maintain Clear Communication: AP teams maintain open and transparent communication channels with suppliers. This includes addressing any concerns or issues promptly and providing updates on payment status or any changes in processes.
- Ensure Timely Payments: They strive to make payments on time or even ahead of schedule whenever possible. Consistent and timely payments build trust and strengthen the relationship with suppliers.
- Create Vendor Portals: Self-service platforms such as vendor platforms enable suppliers to access payment status, invoices, and relevant information, reducing the need for disruptive, real-time communication and inquiries.
- Negotiate Favorable Terms: AP teams work with suppliers to negotiate payment terms that benefit both the suppliers and the organization. This may include early payment discounts or extended payment periods based on the financial health of the organization.
- Dispute Resolution: They also handle invoice disputes or discrepancies professionally and efficiently. This includes collaboration with suppliers to resolve issues to the satisfaction of both parties.
- Conduct Regular Reviews: Finally, AP teams conduct reviews of supplier performance to address any concerns or areas for improvement constructively.
Expert Views on Procurement and Accounts Payable
When we dug into the undeniably strategic link between procurement and accounts payable, we found that experts had a lot to say.
“If you are in an AP department, it’s critical to ensure there is no fraud, or you are not paying double,” says Xavier Olivera, an analyst at Spend Matters who specializes in AP automation. “This doesn’t just get rid of annoying headaches with payments, but also positively affects processes higher up in the source-to-pay chain.”
“There is a lot of investment in AP automation and payments solutions right now, especially in North America,” Olivera says.”There are millions, even billions of dollars going into these types of solutions, which are oftentimes incredible value adders that layer on top of source-to-pay technology.
B2B payments automation is key
The idea is to really automate the entire process not only so humans can be freed up to do more strategic work, but also to reduce human error, and therefore exceptions, duplicate payments, and fraud attempts.”
What happens when procurement starts to understand the risk inherent in onboarding their carefully cultivated supplier relationships? They can be an active participant in championing automation at the vendor onboarding and AP functions.
This type of solution is key to finding seamless processes that consider all parties involved.
“Both processes have to be unified,” Olivera said. “They are two different worlds, but they must come together because one needs to comply with the other. It ensures you have what you need and your supplier is paid–safely.”
To wrap up, procurement teams need their AP counterparts for a vendor management strategy to work effectively, and for an entire organization to thrive. Specifically, procurement can help AP teams lobby for an organization to invest in an automation platform.
But just in case you assume that we’re calling out procurement teams only, stay tuned for our blog next week.
We’ll be discussing what AP can learn from procurement. Oh yes, it goes both ways.
Resources For More Insight into the Link Between Procurement and Accounts Payable
Check out our resources below:
Making Procurement Automation Your #1 Focus: Why It Matters
Tackling Accounts Payable Challenges: Effective Solutions
Vendor Management Tips From the Experts Themselves
Vendor Management Challenges (aka What Your Vendor Manager Isn’t Telling You)
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