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In the Financial Supply Chain, What You Can See
Can Help You
Payment strategies to drive operational and financial success
By Terry Wellesley
April 2011
Following the latest recession, organizations faced increasing pressures to manage
costs and optimize the processes of acquiring goods and services. This state of lean is
now a permanent reality and, as a result, finance and treasury executives are looking to
the financial supply chain for permanent solutions. They’ve seen the benefits that a
tightly managed physical supply chain can deliver, and now they want to squeeze
similar returns from the financial supply chain. They want to improve cash flow, replace
checks with more efficient electronic payment methods, maximize early payment
discounts, and optimize return on cash and working capital. By taking control of both
spend and payment strategies to manage costs, and by utilizing the right mix of
payment solutions, organizations can drive both operational and financial excellence.
Inefficient Payment Processes Undone
It’s not unusual for a company to have hundreds or even thousands of suppliers. Best
practice, however, is leading companies to rationalize and consolidate their supplier
base, better positioning themselves to negotiate favorable pricing and service levels –
not to mention the administrative savings that come from managing a smaller supplier
base. With the right mix of payment solutions, companies can capture the data and
glean the intelligence they need to rationalize suppliers and manage their most strategic
supplier relationships more effectively.
Today, paper checks remain one of the most common payment methods, in spite of the
mountains of research that proves that paper processes not only lack the visibility and
the analytics of electronic systems, they consume more time, drive higher operational
costs, are difficult to track and are easy targets for fraud. Electronic payments systems
are safer, faster, less error-prone, and they have been shown to increase productivity,
and, ultimately, improve service levels. But moving to electronic payment methods
alone isn’t enough to realize the true benefits of a financial supply chain. Companies
must employ the right mix of payment programs to support the business needs.
Fishing for Savings
Consider the experience of a small business in the Pacific Northwest that manages a
fleet of fishing vehicles. The company faced a cumbersome and labor-intensive spend
and payment reimbursement process which included:
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pre-funding fisherman to purchase supplies at the beginning of each season;
advancing money throughout the fishing season for extra supplies; and,
manually reconciling and settling with the crews when the season was over.
Running the business required reams and reams of paper invoices and yielded little to
no insight into how well its spending was supporting its business objectives.
In 2010, the company implemented a procurement card (p-card) system, an electronic
invoice presentment and payment (EIPP) system and an online reporting system.
Subsequently, each purchase made with a p-card resulted in an electronic transaction
record, giving the company’s controller the ability to capture spend and gain greater
visibility of purchases in real time, and to generate analytical reports on spend volume
with each vendor, while keeping the fleet of fisherman on the water and focused on the
catch. In just one season, the p-card program reduced the number of invoices in the
Accounts Payable department by 70 percent, eliminated 3,500 purchase orders and an
estimated 14,000 pieces of paper.
That’s the power of a comprehensive, holistic approach to spend and payment. The
fishing company embraced p-cards and quickly gained real-time visibility into the
business. The business owners were able to identify opportunities to reduce costs
through redeployed headcount, increased process efficiency and even decreased
printing and mailing costs. The company benefited from better cash flow, forecasting,
risk management. And downstream, they significantly increased supplier satisfaction.
The Payment Mix: The Right Strategy for Your Business
The right mix of payment solutions can help organizations from small businesses to
Fortune 100 organizations realize significant value. (See sidebar “Payment Options.”)
Today’s economic environment also opens up new opportunities and flexibility to
negotiate extended payment terms or early payment discounts through faster pay with
suppliers.
World class B2B Supplier and Payment strategies stem from having an actionable set of
real-time information about actual spend. The financial supply chain provides an
organization with critical visibility into key relationships – how best to collaborate with
partners, how to negotiate terms, where discounts and service level agreements can be
improved, and how to drive better service and quality. Savvy businesses understand
this and are adopting the right mix of payment tools to meet their needs.
SIDEBAR – Payments Options
What are the elements in a comprehensive, integrated spend and payment solution?
Purchasing Cards
Purchasing Cards offer easy controls and simplified spend analysis, allowing you to
leverage your organization’s ability to manage procurement spend policies, drive
significant cost savings, eliminate paperwork, improve spending control and accelerate
delivery. Look for cards that enjoy the highest levels of acceptance within your supplier
base supported by extensive controls and reporting.
Travel and Entertainment Cards
The right T&E card will enable you to drive costs out of your systems, increase
transparency and enhance spending controls. Look for cards with global acceptance,
flexible billing and payment options, a robust set of cardholder benefits including a
rewards program and comprehensive fraud protection.
Fleet Cards
Fleet cards can help you monitor and control fuel and maintenance expenses. They
should come with detailed data management so you can capture a variety of transaction
data, including amount, date of purchase and supplier name, as well as more detailed
data such as odometer readings, driver or vehicle ID, grade of fuel purchased, quantity
of fuel, unit price and sales tax paid. And of course, look for card acceptance at your
vendors of choice.
Prepaid Cards
Prepaid cards are growing in popularity. They provide a safe and convenient alternative
to cash and checks. Unlike a typical credit card, funds are pre-loaded onto the card and
as purchases are made, funds are immediately deducted from the available card
balance, up to the prepaid amount.
Electronic Funds Transfer
Electronic Funds Transfers offer highly efficient electronic payments on the ACH or
DEFT networks.
Approve2Pay™
Approve2Pay™, from my company, offers a convenient and flexible payment solution
that combines the benefits of a purchasing card program with the added control and
security of a buyer-initiated payment solution. Approve2Pay™ allows you to migrate
paper-based supplier payments (typically checks) to an electronic solution, automate
payments and maintain control over timing of payments.