As business leaders map out their growth strategies, banking experts say there’s one high-impact lever in every company’s back-office operations that’s often overlooked: accounts payable.
While the primary function of the AP department is to send money out the door, new technology allows companies to pay vendors while reducing costs, reducing risk, better managing working capital and even generating additional revenue.
“Having the technology in place to do more with less is a huge competitive advantage,” said Makenzie Fox, senior account executive with Commerce Bank’s accounts payable solutions team in Nashville.
Fox and Jason Turner, vice president and manager of national solutions consulting at Commerce Bank, recently shared the key benefits of AP automation and why a strategic approach to implementation is essential to realizing its full potential. In his experience, even companies that have automated significant parts of their business sometimes still rely on manual processes to issue payments.
Bringing automation to ‘mission critical invoices’. Turner recalls meeting with an AP leader and noticing a red folder sitting prominently on his desk. This folder contained all the critical invoices for the company. I would take it to the office, collecting accounting codes and signatures before processing payments.
“This is not as unusual as you might think,” Turner said. “Not everyone has a red folder, but they have a very manual process for these mission-critical bills.”
Here are some of the key benefits of AP automation:
More efficient use of staff – freeing up time for growth. Some ERP systems can convert paper or e-mail invoices into digital records, but many require solutions from third-party vendors, such as Commerce Bank, to eliminate most of the data entry by entering them electronically into the ERP. They make it easy for a staff member to verify data accuracy, sync invoices with specific expenses, send them to approvers with reminders, and provide real-time visibility to business leaders. This frees up time for the AP team to focus on exception handling and other strategic work.
The efficiency gains can be significant, Fox said. “I’ve seen some companies struggle to acquire more business or otherwise grow because their old processes are taking too long,” he said.
Reduced payment costs. Generating physical checks costs $3-$5 per item, on average, and some ACH and wire payments also incur fees. AP automation makes it easy for businesses to choose the most cost-effective payment types for each transaction.
Even companies that regularly use electronic payments for vendors often still pay people by check. The technology allows these payments to be seamlessly moved to virtual cards that can be accessed with mobile wallets.
“A school district, for example, can pre-load virtual cards with money that teachers can use to buy school supplies or pay for incidentals during a conference. This can replace administrative expense reimbursements,” Turner said. “The district can send money to a virtual card that teachers can access and use on their phone. It’s a controlled process, but at the same time it’s easy for that person to use.”
Improvement of working capital. Technology-driven payment systems make it easy for finance teams to make payments according to the terms of each contract, controlling when money leaves the business. In addition, virtual card payments often have a credit component, allowing the supplier to be paid in installments and the buyer financing this payment at a later date.
“That’s where a payment strategy can come into play,” Turner said. “There is value in keeping your cash, especially in the rate environment we have.”
Generating income. Many financial institutions offer businesses a revenue sharing arrangement on some forms of electronic or digital payments.
“This takes what is traditionally a cost center and turns it into a profit center,” Fox said.
Exploring what’s possible with a long-term AP partner. When Turner and Fox consult with business customers about AP systems, they often start by doing a pay cycle review, free of charge. These reviews usually take a few hours to half a day and include clarifying priorities and mapping the company’s current payment processes. According to Fox, reviews routinely identify areas where AP automation can deliver meaningful results.
“It’s exciting for me to meet with those PA managers who are burning the midnight oil, cashing the checks and chasing the bills,” he said. “They see our solutions and breathe a sigh of relief knowing that AP automation can help them and their team.”
Action items and benefits often vary by industry, Fox said. Healthcare companies, for example, tend to find ways to minimize manual workflows, allowing their existing teams to do more without having to hire in a tight labor market. Instead, construction companies often use AP automation to create more predictable cash flow in a field where long lead times increase the need to optimize working capital.
Successfully introducing new technology always requires thoughtful change management, and having external support is key, according to Turner. He recommends working with a financial partner who will help make adjustments as the business grows.
“At Commerce, we have an entire department focused on accounts payable solutions,” Turner said. “As part of the CommercePayments® line of business, this specialization allows us to bring a lot of value to the organizations we work with.”
Regardless of the challenges your company faces, and the questions that come with them, you don’t have to face them alone. At Commerce Bank, we’ve been helping businesses of all sizes find the solutions they need since 1865. Because nothing matters more to us than your success. More information at commercebank.com/SolutionsThatMatter.
CommercePayments® solutions are provided by Commerce Bank.
