Evaluate Your Temporary Processes to Build a Long-Term Payables Strategy
Now is the time to digitize paper invoices and payments and organize your payables strategy for the future.
Even during times of crisis, vendors require payments. Sending those payments, however, can be especially difficult for companies reliant on paper-intensive processes. More than a year into the COVID-19 pandemic, it’s time for accounts payable teams to take a critical look the challenges they faced and the temporary fixes they implemented. From there, accounts payable can develop long-term solutions to reduce friction costs and increase efficiency.
1. Shifting Paper Invoices to Electronic
Challenge: When remote work began, many accounts payable departments—particularly those reliant on manual and paper methods—scrambled to digitize their workflows and payment approval processes.
Short-term response: Some businesses opted to send signed and scanned invoices via email, which moved the team’s workflow into a decentralized system that lacked visibility into open payables.
Long-term solution: Businesses can make the shift online smoother with a few updates, including:
- Adopting an online approval and payment workflow tool: It’s important that this tool provides an electronic audit trail and access regardless of location. Your company can consider a third-party provider, a bank solution or your enterprise resource planning system (ERP) provider, which may offer bolt-on modules for the payables function.
- Digitizing invoice receipts: Consider using a self-service vendor portal, which can reduce service interruption. It may be challenging to get vendors onboard with electronic invoice submission. But by transitioning as many invoices as possible away from physical mail, you are less likely to miscommunicate or miss a payment.
- Standardizing solutions across the enterprise: Work to integrate or centralize your internal and back-office systems. The more channels your accounts payable team uses to receive invoices, the more complex the process becomes. Technology can help standardize and streamline the process across teams.
2. Digitizing Paper Payments
Challenge: Many companies were heavily reliant on check payments when the pandemic started, and remote work settings were ill-suited for on-site check printing. Businesses had to quickly adapt their check print functions for remote workers.
Short-term response: Some businesses moved their check printing to an employee’s home or sent a few accounts payable staff to print in office. These approaches provided helpful short-term solutions but weakened the controls normally in place.
Long-term solution: Ultimately, businesses should want to send fewer check payments. It's best practice to proactively incentivize vendor adoption of electronic payment methods, such as card and ACH. Often times, you can do this by offering favorable terms for your preferred method of payment.
You can also look outside your organization for assistance:
- Consider working with a third-party party to store sensitive payment data and help reduce the risk of fraud for vendors.
- Work with your bank to implement a holistic payables solution, incorporating various electronic payment methods.
- Look at outsourcing check printing to your bank when you must send check payments.
3. Organizing Your Payables Strategy
Challenge: The pandemic left specific units of many businesses cash strapped. As a result, these units searched for ways to increase days payable outstanding.
Short-term response: Some accounts payable teams arranged extended terms or credit with vendors. But if the teams didn’t have an organized days payable outstanding strategy—common during an emergency scenario—multiple business units may have varying agreements in place with the same vendor.
Long-term solution: To make your payment agreements more uniform, take a deep dive into your vendor list and terms. Reconcile inconsistencies across business units wherever possible. Make sure to document your terms and payment strategy in a single system, so all units have visibility across the business. Leverage your vendor review as opportunity to align terms to preferred payment methods.
Creating a Payables Strategy for the Future
The pandemic forced companies to react quickly. For many, that meant a quick transition to digital payments. But after more than a year of using short-term solutions, it’s important to review vendor payment methods and existing electronic payment technology holistically. You can lean on your banks, advisory groups and other long-standing relationships to help you create a holistic payables strategy that minimizes disruption during emergency situations.