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Supplier Management 101 : Accounts Payable Management and Profitability Impact

2 Aug, 2019 by Nitin Jayaraman
In this digital economy, vendors and suppliers have become an important aspect of an organization’s growth strategy, as more and more businesses adopt a 4PL or 5PL approach. Managing suppliers, supplier relationships and supplier information efficiently has become a business necessity. And smart organizations know how to leverage strategic supplier relationships, to build true competitive advantage and scale. 

The Risk of Missed Payments

It is critical that you identify your strategic vendors and cultivate a good relationship with them if you want to increase your profitability. As business scales, so will the number of suppliers/ vendors you deal with, making accounts payable that much more difficult to manage. This increases the risk of missed payments, and breakdowns in those key supplier relationships. If your organization pays its bills on time, actively nurtures good relationships with its suppliers, doesn’t cut off suppliers with no reason, and keeps lines of communication open, you stand to get the best trade credit terms possible, which can help maximize overall profitability.

Supplier Accounts Payable and Profitability

Accounts payable (AP), located on a company’s balance sheet, are what the company owes its suppliers/ vendors from whom it buys its raw materials or services. They are a current liability, usually expected to be repaid to the suppliers within one year or the agreed payment cycle terms. Just like any other asset or liability – accounts payable – i.e your company’s unpaid vendor bills can have a big impact on day-to-day operations. Lack of attention in this area can cause your company’s profitability to really take a hit.  Inefficient supplier/ vendor accounts payable management negatively impacts 
  • Timely availability of critical services or raw materials
  • Your company’s cash flow and overall profitability and
  • Subsequently, the company’s relationships with its suppliers or vendors 

Studying the Disconnect : What Causes Missed Payments?

In general, the procurement / front-end function at companies deals with choosing vendors, making the commercial agreements (at the front-end level). Usually, the contracts get signed by business owners. The issue is how the vendors/ suppliers are actually managed in the systems that interact with them on an operational basis. One part has to do with making sure the vendors are compliant – which is covered by the CPQ systems in place.  The other critical part has to do with then adding the vendors into the existing systems, and then keeping that information across your disparate systems current. It involves all the ongoing interaction between vendors and the business, including :
  • Updates to vendor information (bank accounts, other legal / business info)
  • Invoices sent by vendor
  • Communications sent by the business to the vendors
When you’re managing suppliers at scale the runaround involved in managing this communication and keeping data current, can get exhausting and chaotic. 

The Need for Supplier Payable Management

If the vendor makes a change to their info, they notify the business by email. At times their point of contact is wrong – it may be the business owner who signed their info. In which case it may get deleted or forwarded around until it gets to the back-office person, who then has to continue to interact with the vendor until the updates happen. Again, if there is an invoice submitted, similar events can happen and the vendor may not get paid.  As a result, the vendor may be forced to take an unfortunate business action against the business because of non-payment on time. And, if the business needs to contact the vendor regarding any issue, the runaround continues. Which is why there is a need for supplier payable management.  CloudIO Supplier Connect has been built to address these specific challenges, to simplify supplier management at scale. With CloudIO’s solution extensions, organizations can  easily
  • On board and engage suppliers with smart self-service portals
  • Manage vendor payments and relationships with timely communication
  • Connect procurement, contracting, and AP systems to ensure vendor payments are on-time.
Looking to build a reliable supplier network that drives sustainable growth? Contact us to learn how you can manage suppliers at scale with CloudIO Supplier Connect.

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