Once you have gained control over how you purchase, you need to turn your efforts to improving the efficiency of your accounts payable process if you want to master your procure-to-pay process.
A good place to start is by reviewing your list of vendors. Do you know what it costs to maintain each supplier relationship? According to The Hackett Group’s report, The Benefits of Supplier Consolidation Extend Far Beyond Sourcing Savings, it costs between $700 and $1,400 to maintain a relationship; that includes sourcing the supplier and setting up internal systems that allow you to work with the supplier.
Review your supplier list to see if there is a way it can be consolidated to help you gain efficiencies and strengthen relationships with a smaller number of suppliers can become business “partners.”
Once you have your supplier base set, you need to look at how you are processing the invoices you receive from those suppliers. You know there is room for improvement if you find that your accounts payable department is still manually processing a large percentage of invoices. Companies that manually process invoices indicate each one costs about $18. For those companies that are highly automated, that same invoice processing costs less than $5 each, according to The Hackett Group.
The time it takes to process an invoice is another important measurement of your efficiency. Fully automated companies take 3.9 days to process an invoice. The manual process can take 17.1 days, according to an Ardent Partners report ePayable 2016: Eyes on the Prize.
Of course, you need to find the right balance between paying the invoice too soon and paying it too late. The goal is twofold: to maximize your cash flow and to maintain good relationships with your suppliers at the same time.
Consolidating your supplier base and automating your accounts payable process helps you keep things in the proper balance so you can achieve both of these important goals.
