Automating the procure-to-pay process to increase working capital
Companies that invest in automation in their AP departments reduce the per purchase order cost from $18 to $5, according to The Hackett Group.
Every business wants to increase its working capital so that it has plenty of funds on hand for its day-to-day operations. Many try to do that on the backs of their suppliers by stretching out payment terms. While this is certainly one way to have cash on hand, studies have found that extending days payable outstanding is not a good long-term strategy for increasing working capital.
A better way to increase working capital is to invest in automating your payables process. Far too many fleets are still relying on paper-based manual processes when it comes to their accounts payable. Fully automating the procure-to-pay process — from receiving the invoice all the way through to paying the invoice — can result in significant savings, as well as improve the overall operational efficiency of your fleet.
Sean Bliss, vice president of sales, procurement services, Corcentric, told CFO magazine, “If you don’t have a good handle on where your payables stand, you may have more capital than needed, which means you could be forgoing a better rate of return or, in a worst-case scenario, you could run out of money.”
Just how much can be saved from automating the AP process? According to The Hackett Group, companies that have invested in automation in their AP departments have reduced the per purchase order cost from $18 to $5.
Initially, automating processes requires investment but, in the long-term, it will free up working capital by eliminating errors from things like lost invoices, which can prevent you from taking advantage of payment discounts or other offers.
Automation gives you visibility into the AP process so that the finance team can see every time a purchase is made, invoiced and paid. This helps them understand transaction lifecycles. They can use this information to improve case management and make better forecasts.
Having to wait until receipt of an invoice, rather than knowing at the time it happened that a purchase was made, can leave the finance team in the dark when it comes to making sure they have cash-on-hand to pay for a purchase.
Automation also allows the finance department to set up payment schedules so they can take advantage of early payment discounts, which helps with cash management.
Overall, automating the procure-to-pay process gives you a clearer picture of your financial performance and insight into your suppliers. Combined with the significant savings on the per purchase order cost, automating your accounts payable is a smart next step for your business.