By Stephen Carter, Director of Payments Strategy at Ivalua
Supply chains have faced crisis after crisis over the past two years, further highlighting the need for organisations to foster strong supplier relationships as they look to navigate increased disruption. Payments is one area where organisations can build much stronger relationships with suppliers, allowing them to work strategically to address disruption. However, for organisations there is a disconnect between internal procurement and finance teams that is preventing them from using payments to do so.
The lack of collaboration between these two critical departments can create damaging business outcomes, from weakened supplier-buyer relationships and higher costs to poor visibility and increased supplier risk. But how can organisations ensure these two departments are on the same page?
Living separate lives under the same roof
Payments were once viewed as merely a transactional process. However, they have since shifted to become far more strategic. Payments can be used more prudently to lower costs, drive innovation, navigate supply disruption, and make intelligent decisions about paying suppliers.
However, firms are struggling to unlock the strategic value of payments, which stems from a lack of collaboration between the procurement and finance teams.
This comes down to a number of issues. Firstly, a reliance on ageing legacy payment systems that make it extremely difficult to integrate finance with procurement systems. In many firms, the current supplier payments function exists in an ERP “black hole” that is disconnected from upstream processes like procurement. As processes, priorities, and efforts are not unified across departments, activities such as payments inquiries are often duplicated as the procurement and finance teams are approached separately – wasting valuable time on inefficient activity.
Secondly, procurement teams often have very little visibility into when their suppliers receive payments. It’s critical that the procurement department is aware when payments are late, as delayed payments can severely damage supplier relationships. It can damage ties with key suppliers, as they are more likely to prioritise organisations that pay promptly and strive to maintain a collaborative partnership, even in times of difficulty. Delayed payments can also put smaller suppliers at risk of collapse – in fact, research shows that almost two-thirds (65%) of suppliers feel late payments are putting their company at financial risk.
It’s also equally important that procurement teams have visibility into payments in the event that the supplier has not met its targets. For instance, it does not help the organisation’s negotiating position with suppliers if they have already been paid, despite delivering a poor service.
Improving the visibility and timeliness of payments is the single most impactful way to help organisations become a partner of choice. But without opening avenues for conversation between procurement and finance, organisations are unable to use payments strategically – meaning that they are missing out on chances to collaborate, forecast cash needs, manage suppliers effectively, and find cost savings.
Offering an olive branch
Improving communication between procurement and finance starts with having the processes and technology in place to ensure both departments are on the same page to achieve the best outcomes. By modernising supplier payments, organisations can connect finance, procurement, and account payable systems, helping to unlock real-time payment visibility, reduce the duplication of activity, and open up access to greater automation. This helps to ensure payments become a key strategic value add.
For instance, restaurant operations leader AmRest addressed the visibility gap between its procurement and finance departments by joining systems across multiple countries, creating one view of the process for local procurement and finance teams. Bridging this gap helped AmRest to create a single, consolidated view of data, enabling it to generate accurate data models to streamline purchasing decisions and support its strategic decision-making process.
Equipped with real-time payment visibility and execution, organisations can ensure timely payments and high-quality delivery, every time. This brings a real competitive advantage, as on-time payments can help to gain favour with suppliers, secure goods in a time where products may be in short supply, and ultimately build supply chain resilience.
A smarter, digitised payment and procurement process also brings tangible cost benefits by automating processes and reducing inefficiencies for the Accounts Payable department. Embedding supplier payments within spend management allows organisations to automate inefficient manual processes that waste both departments’ time. Boosting efficiency through automation helps to eliminate any unwanted or duplicated payment inquiries, freeing up the team’s time to spend on higher-value activities instead of laborious manual tasks.
As organisations slowly navigate their way out of crisis mode, payments have become much more strategic and are seen as a core part of procurement’s digital transformation. However, unlocking the true strategic value of payments starts with creating one business with one mission to achieve their long-term goals.
Organisations must have a unified vision to create a successful strategic payments process. By integrating payments and invoicing – and connecting this data with procurement – organisations will be able to take control of payments schedules and ensure strong lines of communication between both departments. It’s only through collaboration that organisations can get through this rough patch, and timely payments will go a long way to ensure you have great relationships with suppliers.