The AP Playbook for Building Solid Supplier Relationships

For mid-market businesses with expansive and growing supply chains, proactively cultivating mutually beneficial supplier relationship management is growing in prominence. With growing economic and geo-political uncertainty creating significant supply-chain vulnerability, businesses are realising that managing suppliers solely on the lowest-cost principles may not create a sustainable long-term advantage. Consequentially, businesses are pivoting from transactional-centric approaches to a value-focused model, based on building resilient supply chains and long-term competitive advantage.

Fundamental to reimagining the supplier relationship is the ability to pay vendors on time. Accounts Payable (AP) departments can play a crucial role in forging strategic alignment between suppliers and the enterprise, as they are responsible for payments within contracted time frames. Automation of the core payables process fosters a cycle of continuous efficiency improvement. This includes the ability to speed procurement cycles, capture greater savings and negotiate favourable payment terms (optimise days payable outstanding), without squeezing liquidity for suppliers.

AP automation tools from the right provider can help organizations build strong relationships based on trust, transparency, and mutual benefit positively impacting the supplier relationship. For enterprises, the benefits include:

Unified View of Suppliers

Across enterprises, supplier data can be resident across disparate systems and at times vital information may even rest within spreadsheets on individual employee systems or e-mails. In firms with multiple lines of business, internal silos hinder cross-business execution and introduce inefficiencies in the supplier management process. As an example, suppliers may be serving multiple departments without the knowledge of AP teams, minimising their ability to negotiate better payment terms. Likewise, as the business and its vendor base expand, supplier classification based on superior performance and strategic business value for prioritisation of payments become a challenge.

Automated AP processes with built-in supplier enrolment workflows can create a single and accurate system of record, accessible to all stakeholders across the business.This allows the business to create a cross-functional baseline understanding of their supplier base and spot opportunities to maximize value. This includes:

• referencing preferred vendor lists for sourcing decisions
• eliminating spend duplication across multiple locations
• reviewing and negotiating better payment terms across suppliers
• identifying vendors that represent a larger proportion of business spending or provide strategic value through superior performance, and access to a specific resource at exceptional pricing opportunities.

Advanced Segmentation Models

Some vendors have a greater impact on business performance than others. In some cases, the relationship may be strictly transactional. In other cases, the relationship may go deeper, forming a strategic alliance in which buyer and seller collaborate on common goals. Businesses are aware they need to devise relationship management strategies specific to supplier criticality and impact on operations.

In practice, front-line employees across multiple business functions manage suppliers. Across businesses, anecdotal evidence indicates lines of business that are more demanding get their vendors paid on time, even if from an overall organizational perspective, they potentially rank low in importance. Some businesses also follow a first-in, first-out payables policy to avoid inter-departmental friction, as AP personnel lack visibility into enterprise-wide operations and do not have deep familiarity with business operations.

Businesses that adopt enterprise-wide segmentation models such as the Kraljic Matrix to map suppliers along leading indicators such as risk and profitability can help their AP departments better coordinate across the supplier ecosystem. The actual categorization may be the responsibility of the business procurement function. However, AP automation platforms that support related KPIs can go a long way to strengthen collaboration. As an example, allow businesses to define a single-level invoice approval process or configure early warning alerts on potential invoice approval delays for star suppliers.

Facilitate Prompt Payments

Cash flow is as important for the supplier as it is for the buyer organization. On-time payments are the single most crucial factor in building resilient supply chains

With economic volatility and geo-political tensions disrupting regional and global supply chains, there have been countless cases of companies adjusting payment timing and terms to manage cash flows. The Economist cites deferred payments as among the top three cash optimization strategies adopted by enterprises. But while this strategy has been a pivotal tool to manage cash flows, it can lead to broken supply chains, slower deliveries, and prolonged time-to-market cycles.

AP automation platforms offering embedded finance products can mitigate cash constraints and facilitate money movement across the supply chain. Businesses, for instance, can access instant credit card products to finance payables. This instils trust, improves credibility, and helps businesses achieve preferred buyer status with their suppliers. Additionally, businesses can earn 1%-2% on total AP spend in the form of cashback and rebates, capture a larger volume of early-payment discounts and reduce late fees and overcharges.

Many AP automation providers are also collaborating with third-party service providers to offer supply chain finance to ease cash flow constraints. The payables finance programme enables suppliers to sell trade receivables to the buyer’s bank, and receive a discounted value as represented by outstanding invoices. Large businesses with cash reserves during the pandemic, in conjunction with banks, made credit available to their supplier base.

AP automation and embedded card providers such as Zaggle are collaborating with banks and authorised financing companies to extend such convenience to mid-market businesses and improve the ease and convenience of funding and address liquidity needs.

Optimise Payments Mix

Businesses need to walk a constant tightrope between managing working capital and supplier demand for timely payments. According to a PWC 2020-2021 report, approximately 70% of suppliers are paid late, which impacts business growth in the long term. Built-in support for a range of payment modes – card rails, real-time payment rails, and bank rails – provides businesses with greater flexibility in managing supplier payments. Businesses can leverage a mix of instruments to optimally manage cash and negotiate payment timing and terms. For instance, in high-interest rate environments, businesses could opt to pay a larger volume of invoices using real-time instruments such as UPI and IMPS, as it allows them to improve interest earning on existing cash buffers and make just-in-time payments without having to alter supplier payment terms. Likewise, virtual cards that offer higher rebates can be used by businesses to make early payments to cement relationships with critical suppliers.

Build Seamless Engagement Processes

Onboarding represents the first buyer-supplier interaction for the financial institution and sets the tone for the entire relationship. Supplier enrolment necessitates compliance with a raft of supplier KYC and due diligence considerations. AP departments need to reconcile these complex compliance requirements with supplier expectations for a smooth onboarding experience. Digitalised processes can simplify and streamline onboarding processes. As an example, advanced workflows built into Zoyer auto-fetch and populate supplier details from third-party bureaus using the social identity number (Aadhaar) or goods service tax number, dramatically simplifying the onboarding process.

The right AP automation platform optimises invoice processing time and accuracy, Purchase orders (POs) shipping notices and invoices can be generated in a few minutes, reducing administrative overheads for buyers and suppliers. More importantly, two-way and three-way matching between the POs, invoice and the goods received notes, reduces invoicing-related disputes. Suppliers also benefit from instant visibility into the status of payments and invoices in real-time, from one central location, obviating the need for suppliers to constantly follow- up for updates.

Track Key Performance Metrics Embedded analytics can help AP teams track critical metrics that have a bearing on the supplier management process. This includes:

• days payable outstanding
•  compliance with contracts
• non-preferred supplier spends
• duplicate and overpayments
• time to process invoices for preferred and non-preferred suppliers
• invoice approval and error rates

How Zoyer supports positive supplier relationships?

An AP automation and embedded cards platform like Zoyer can add strategic value to the supplier relationship program through:

Digital-first processes – Intuitive web and mobile portals enabling vendors to self-onboard, acknowledge purchase orders, raise and trace invoice progress, view payment status. and receive notifications across all stages of the invoice cycle. This improves transparency and eliminates friction between buyers and suppliers.

• Improved transparency -Visibility into the complete invoice-to-pay process streamlines engagement and helps create a base of satisfied and loyal suppliers.
• Embedded cards – Enables buyer organizations to meet payment obligations on time by availing instant working capital credit
• Graphical dashboards – Tracks key processes, providing both buyers and sellers with a real-time snapshot of payables
• Cross-functional collaboration – Provides role-based access and permissions, with well-defined handoffs across multiple functions for smoother invoice processing

Supplier relationship management involves a mutually beneficial relationship between the business and its vendors. An efficient accounts payable process is a crucial component for building trust and maximizing value from supplier relationships. By proactively investing in the right AP platform, businesses can find ways to manage cash flow, strengthen efforts to build resilient supply chains and set themselves up to prosper in the future.

To know more on how AP automation can strengthen supplier relationship management visit www.zagglezoyer.com