5 Steps to Refresh Your Payables Policy
The most effective payables policies are developed by reaching beyond standard practices and aligning your organization’s payables policy with your overall financial strategy. Use this five-step process to help prepare your institution for an overhaul of your payables policy.
In developing a payables policy refresh strategy, there's a natural tendency to lean toward revisions based on the most obvious or most frequently identified exceptions between your current payables policy and your day-to-day business practices. And while it may help to note those exceptions and record them for review, considering the amount of effort involved in a policy refresh and rollout, it's important to take it a step further.
A comprehensive review should focus on streamlining the payables process and driving operational efficiency with the most efficient use of resources, the elimination of paper, a reduction of the number of policy and process exceptions and an alignment with your short- and longer-term financial priorities. Near-term technology changes, recent and proposed government regulations, and other current and future potential influences should also be considered.
To refresh your payables policy, I recommend the following five steps:
1. Review Your Payables Policy
A review of your organization’s working capital strategy should be a prerequisite when developing or refreshing your payables policy, because your payables strategy can play a key role in accelerating access to working capital. A balanced approach of extending terms, maximizing discounts and earning rebates helps optimize working capital and improve operational efficiency. Increases in working capital will vary depending on your organization’s internal investment objectives or how you take advantage of alternative uses of working capital.
2. Diversify Your Research
A good place to start your research is among peer group organizations that survey members and publish statistics. This will be a good resource for establishing and benchmarking your goals. Another good resource is financial institutions who offer information sessions (on-site or by telephone) or webinars to educate current and potential customers about changes in the marketplace.
Seek input from stakeholders—accounts payable, compliance, procurement, legal, audit, human resources, etc. As organizations become more intraconnected and transparent, information sharing can increase efficiency. Determine which other departments may utilize payment information, and plan for the inclusion of that pertinent information when collecting and archiving data, so that, for example, an audit report doesn’t require sifting through multiple files for completion.
Another key area for review when identifying payment policy gaps is deficiencies noted in recent audit reports. Although many of these occurrences are due to unawareness of—or not following—policy, sometimes they can indicate areas where the policy needs a refresh.
3. Perform a Risk Assessment
Technology risk, compliance with federal and local code, and financial and investment risk are some areas, among others, that should be assessed as part of the payables policy development or refresh.
Compliance and controls are imperative in today’s environment. Your organization services both internal and external constituents. Balancing the needs for transparency and data security can sometimes involve contradictory goals. Assessing the risk factors and acting accordingly is key to driving change. Security risks, cyberattacks, economic risks, budgeted and programmed risks, and privacy risks all need to be balanced in today’s environment.
Payables policy areas that require greater attention in order to combat fraud and misuse and reduce risk include:
- Evaluation of security for collection
- Maintenance of supplier bank account information
4. Evaluate Your Findings
When you have concluded your discovery by completing your review research and risk assessment, the next step is to evaluate the information collected. Creating a plan to manage suppliers’ payments with your overall financial strategy in mind will assist in your success. The plan will differ for existing and new suppliers. Some key areas to evaluate before moving forward are:
- Payment types
- Supplier payment terms
- Outsourcing of resource-intensive administrative functions
- Automation and integration
- Financial institutions
5. Consider New Ideas for Refresh
The previous framework is intended to provide you with some fresh ideas for evaluating, improving or developing a payables policy. It is not purported to be a complete list, but a list of suggested areas to consider, taking into account the fact that each organization has different needs, functions and requirements.
By their nature, automation projects will impact both operations and culture at any organization. Securing senior leadership buy-in and willingness to commit resources is key to successfully implementing this type of initiative. Take the time to think through all the different levels of senior commitment needed to provide the oversight, guidance and visible support necessary to ensure funding and implementation are achievable. Building a comprehensive roadmap to payment automation will be the key to success.
For additional information about how to overhaul your payables policy, read our latest white paper.