Barely a day goes by without supply chain constraints making the headlines.
Whether it’s supermarket shelves running bare, or pharmacies selling out of rapid antigen tests, organisations need to carefully manage their supply chains to minimise the risk of business disruption.
Effective supply chain management is about much more than logistics. At its heart, an effective supply chain management approach is about building strong relationships with your suppliers. Strong relationships may not prevent your suppliers facing covid-related capacity constraints. Nor will strong relationships alleviate potential disruptions to transportation networks.
However, strong relationships with suppliers can facilitate close cooperation and coordination with them, paving the way to achieve best possible outcomes for your organisation in the current circumstances.
When it comes to harnessing strong supplier relationships, your Accounts Payable (AP) team is on the front line. Nothing will damage supplier relationships more than an AP team that neglects to process supplier invoices efficiently. When suppliers are subjected to a run-around every time they need to get paid money that is owed to them, they are unlikely to go out of their way to assist such an organisation when it’s in need of help.
By contrast, an organisation that maintains open lines of communication with its suppliers, and efficiently processes invoices, will have a constructive relationship with its suppliers that can benefit everyone in difficult times.
In this blog we will explore the 5 key approaches your AP team should embrace to help strengthen supplier relationships.
The most important factor in establishing and maintaining strong supplier relationships is communication.
Without open and regular communications, it will not be possible to have the sort of relationship with a supplier that may be beneficial in the event of a supply chain challenge.
Of course, the most important communication between your AP function and a supplier will relate to payments and invoice status information. However, suppliers will also require information about other issues.
From the time a new supplier is onboarded into your Vendor Master File, it is important to take the time to explain how your organisation operates, how invoices are handled and how payments are processed. Clearly articulating what you require from suppliers will help avoid many potential problems down the track.
Consider implementing the following for all new suppliers:
AP staff should be trained to maintain detailed notes about all matters related to supplier payments in the Vendor Master File or ERP system. This information will be invaluable whenever a supplier calls with queries.
Without clearly articulated and communicated expectations and procedures, it will not be possible to establish good supplier relations. It will also result in inefficiencies in your AP function.
One problem faced by many AP teams is endless phone calls from suppliers inquiring about the status of their invoices.
Most suppliers simply want to know either why they have not been, or when they can expect to be paid. Sometimes suppliers will call to ask if you’ve received their invoice and if it has been scheduled for payment.
These calls are disruptive and can make the AP function inefficient. They require AP staff to pause their work, research the invoice and answer the supplier’s questions. Some persistent suppliers call multiple times about the same matter, exacerbating the challenge.
AP managers should look to implement a solution that allows payment status updates to be shared with suppliers. This could reduce the number of inbound phone calls. When suppliers have comprehensive visibility over the status of their payments, they are less likely to become disgruntled and disrupt AP staff.
One option is to make this information available via the internet. Suppliers could be provided a link with a unique username and password to a supplier portal. This would enable them to check the status of pending payments, along with an expected payment date.
Another option could be the implementation of Interactive Voice Response (IVR) technology that allows a supplier to call a dedicated phone number that prompts them to provide certain details in order to obtain a status update.
It’s important that every AP function has effective policies and procedures that govern the entire invoice handling process. This helps AP managers ensure that payments are made in a timely manner, ensures suppliers are always kept updated and will reduce the volume of phone calls inquiring about the status of payments.
Some AP teams have implemented the following procedures when it comes to supplier requests for payment status updates:
Despite all these measures, your AP department will still receive inbound queries from suppliers. However, by adopting the approaches listed above, it will be possible to reduce the volume of queries whilst keeping most suppliers happy. This in turn will aid in strengthening your organisation’s relationship with its suppliers.
More than anything else, late payments can undermine your organisation’s relationships with suppliers.
Regrettably, some organisations deliberately pay suppliers later than the due date as a matter of routine. They do this to reduce pressures on their cash-flow situation. But this can have the effect of imposing cash-flow difficulties onto your suppliers.
In certain extenuating circumstances, it may be possible for an organisation to request an extended payment date, however this should always be done with the consent of the supplier.
Sometimes, a supplier will consent to an extended payment date, even if this causes them cash-flow problems, because they need to maintain the relationship with their customer. However, taking advantage of suppliers in this predicament is hardly a recipe for establishing a strong long-term relationship with them.
Late payments can also create extra work for the AP team. It increases the likelihood that the supplier will re-send their invoices, making duplicate payments a greater risk.
The goal of any AP function should be 3-fold:
Get these three elements right, and your relationships with your suppliers should flourish.
Incomplete or incorrect invoices can represent a major headache for AP functions.
Apart from the risk that fraudulent or erroneous payments will be processed, they also significantly reduce the efficiency of the AP team as staff have to dedicate time to scrupulously reviewing invoices and liaising with suppliers to get them corrected.
For any AP manager, it will come as no surprise that invoices are often sent by suppliers without any indication as to who procured the good or service within the organisation. This in itself can make establishing the legitimacy of an invoice very challenging. It’s not unknown for invoices to be passed around from person to person within an organisation in order to determine who is responsible for the procurement.
Sometimes, depending on the type of good or service, it may be possible to figure out which person authorised the procurement. However, in other cases, that is nearly impossible for the AP team to figure out, particularly for smaller expenditures.
Whatever the dollar value of the invoice, it is essential that all relevant information be included on the invoice before it is paid.
Apart from the name of the individual within the organisation who is purchasing the good or service, every invoice must include the Purchase Order (PO) number so that 3-way matching can take place. Your AP team must cross-check the invoice against both the PO and the Receiving Report before the invoice can be processed. Without the PO number on the invoice, it becomes very difficult to conduct 3-way matching.
Furthermore, every invoice must contain a unique Invoice Number. This is a number assigned to the invoice by the supplier and helps your AP team ensure that duplicate payments are not made.
Whenever an invoice is missing all this information, it should be deemed to be incomplete or incorrect. You will need to return the invoice to the supplier so it can be corrected. This can result in delayed payments, which may irritate the supplier, but you really have no choice in this matter. The risks from incomplete or incorrect invoices are simply too great.
To help reduce the chances that suppliers will be annoyed, it is best to ensure you clearly communicate upfront to all suppliers precisely what information they need to include on invoices. Such information should also be included in your terms and conditions.
If, despite your best efforts, suppliers still send incomplete or incorrect invoices, include a polite letter with the invoice when you return it to them. In the letter it is important to state that it is your organisation’s policy to require this information so they can receive their payment expeditiously.
If a supplier repeatedly submits incomplete or incorrect invoices, it can help to call them directly and explain to them the necessity of following these requirements.
By showing the supplier how they can benefit from following your requirements and including all essential information, they will be more likely to comply. This will also ensure that your relationships with your suppliers are not harmed by such issues.
Whenever invoices are not paid in full, it is important to ensure suppliers are kept fully informed as to the reasons. Failure to do this will undermine your organisation’s relationships with its suppliers.
An organisation may decide to short pay a supplier due to a range of reasons. These may include:
Any deductions must be communicated in as much detail as possible to the supplier. Of course, this does not guarantee that the supplier will agree to the deduction, however, it will at least provide them with clarity as to why the deduction occurred.
Even though it may take a little extra time when the invoices are being processed, it is important to include detailed notes in the file as to the reason for the deductions. These notes will be valuable should a supplier raise the matter with you after a protracted period of time has lapsed. It will also help when it comes to audit time.
With eftsure sitting on top of your accounting processes, managing hundreds, if not thousands, of suppliers becomes much easier.
Our Vendor Master File health check verifies that all the supplier payment data in your records is accurate and up to date. This helps reduce the chances of delayed or erroneous invoice payments. As we know, delays to processing invoices is one of the biggest causes of disgruntled suppliers, so preventing this issue will help endear your organisation to them.
Eftsure also reduces the risk of fraudulent payments. Even if one of your suppliers has experienced a cyber-attack and has had their email systems compromised, any attempt to manipulate the banking information on their invoices will not result in the payment being sent to an incorrect bank account. By using eftsure, your organisation is helping protect your suppliers from the fallout of Business Email Compromise attacks.
Contact eftsure today for a full demonstration of our platform and how it can help your organisation achieve and maintain strong supplier relationships.
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