Supercharging your financial supply chain to improve working capital

In a digital economy, competitive advantages come from the unlikeliest of places - like automating accounts payable to optimize your financial supply chain.

To rescue a department overwhelmed with how to capture-sort-route-validate-match-code-fix-approve and pay an invoice, business networks are taking over. Invoices now can process themselves. With invoice processing under control, accounts payable can evolve from a transaction center into a strategic asset. AP now can help you manage cash and working capital, supporting initiatives that strengthen your income statement and balance sheet.

From paper payables to collaborative finance

Business networks free accounts payable from the burden of processing invoices. This means you can focus more AP time on activities that help improve business performance, such as driving electronic payment initiatives, supporting efforts to rationalize and standardize payment terms, and targeting suppliers for early payment discounts.

Business networks expand the reach of accounts payable, helping to optimize the financial supply chain

Consider payment terms, an area that attracts little attention, but when left unmanaged can negatively impact Days Payable Outstanding (DPO). You can learn about this the hard way. An energy company, for example, discovered that its average DPO over several years fell from more than 50 days to below 30 days—well below its industry norm. A terms extension program can turn that around, with accounts payable playing a key role if not consumed with invoice processing.

Complementing a payment terms analysis is an assessment of your payment options. These could include supply chain financing, a p-card program, early payment discounts, and expansion of electronic payments. Supply chain financing can be an option for large, strategic suppliers, where a third party finance provider can offer early payment at your lower cost of capital.

On the other end of the spectrum, for transactions less than several thousand dollars, a p-card program can be offered to card-accepting suppliers. While these suppliers may represent a large number of suppliers, they typically represent a small portion of your total spend.

Then, there is dynamic discounting, which can be combined with a payment terms standardization program across much of your spend. With dynamic discounting, you continue to capture any standard discounts, but also take advantage of many more dynamic discounts up to the net term of the invoice. The savings from these discounts can be considerable—several million dollars per billion dollars in spend—and these savings can be used to fund procure-to-pay or invoice automation projects.

Last, but not least, is the opportunity to take advantage of a new generation of electronic payments. In the old world, electronic payments moved the funds, but not enough remittance to help suppliers reconcile their payments. A new generation of electronic payment solutions such as AribaPay combines electronic payments with rich remittance detail, and removes the burden, and risk, from buyers of managing bank account information.

Financial supply chain advantage

While business networks have been a vital tool for organizations looking to streamline their physical supply chain, you cannot ignore the business potential from optimizing your financial supply chain. This goes far beyond the capabilities of single-supplier portals that offer visibility into invoice and payment status. With business networks, from one platform, trading partners can manage cash and working capital in a collaborative fashion.

This is another way you can elevate accounts payables from a processing center and balance sheet liability to a valued asset to corporate finance.

About Chris Rauen

Chris Rauen has more than 15 years of experience in the marketing of AP automation and ePayables solutions. In his role at SAP Ariba, he educates key stakeholders on the potential of business networks and the financial solutions that support them to transform accounts payable into a strategic business function. He has been a featured presenter on these topics at industry conferences serving finance and shared services professionals, and his thought leadership articles have appeared in a variety of print and online channels, including Forbes Online and Treasury & Risk Management. Chris holds a B.A. in Economics from the University of California, Santa Barbara and a Professional Designation - Marketing from UCLA.

About Ariba

Ariba is an SAP Company and a US collaborative business commerce and e-invoicing services provider. It operates the Ariba Network, which provides cloud-based applications, a community of partners through which companies can discover, qualify, connect and collaborate with trading partners as well as other services that are only available to members of the community, such as analytics, financing and ratings.