Simplifying your payables

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Employees are working more efficiently today. In fact, labor productivity in the non-farm business sector grew at an annual rate of 1.6 percent in the second quarter of 2012, according to the U.S. Bureau of Labor Statistics. Productivity in the durable manufacturing sector rate increased 4.3 percent in the same period. Many observers credit the advances to improved business processes and the use of technology.

The accounts payable department is one area in which these initiatives can help middle market businesses work smarter.

For example, “if your accounts payable and purchasing areas are working together to improve processes, then invoices will always match a purchase order and can be paid without any further approvals, which reduces cycle time and errors,” suggests Bridgit Chayt, executive vice president and director of Treasury Management Services at Comerica Bank. “If you use that in concert with technology improvements such as electronic payments, you’ll get the greatest return.”

Chayt says by automating a company’s accounts payable function, the often complex and time-consuming task of paying different vendors – by their different preferred methods – can be greatly simplified.

“Invoices are paid on our customers’ behalf, in whatever way they designate,” she says. “Where before you had somebody who had to prepare a separate file for a check run and a separate file to do commercial card transactions and a separate phone call or process to send out a wire transfer, now you simply provide a list of who must be paid, how much, and when, and the service executes the transactions.”

Most automated payment services can be brought on-stream at any point and can grow as your organization is ready to take on more applications. “It doesn’t have to be a massive conversion, and companies don’t have to convince every single supplier to implement the changes,” Chayt says, “but if they focus on the top 20 percent of their suppliers, which often generate 80 percent of the transactions, they can realize a really strong lift.”

By using leading-edge on-line services, companies can have the option of paying vendors by check, ACH, wire transfer, or commercial card, depending on the vendor’s requirements.

“Some suppliers prefer checks with all the information they need on the check or the stub, which makes it easy to reconcile on the receivables side,” says Chayt. “A lot of people like ACH because it’s right there in their account and they can see it; they don’t have to wait for the mail to come, make out a deposit ticket, and go to the bank. Wire transfers are often preferred when sensitive, high-dollar payments are involved.”

Wire and ACH options also provide certainty of payment on an exact date, which helps stabilize cash flow and liquidity and strengthens overall financial management.

Another growing payables method is using a bank-issued commercial card – typically a MasterCard® or Visa® product. Often, companies can receive rebates, just as individuals do with their personal cards. “This is very attractive because companies are looking for revenue streams wherever they might be,” says Chayt. “If there’s a chance to provide some dollars back into the company, they look to get their spends up as high as they can.”

When using a commercial card to pay vendors, companies can create extended terms for themselves because the card settlement is typically not due for a period following month-end.

Companies can realize other benefits beyond productivity improvements when they apply technology to their payables function. “They can more accurately forecast their cash needs to improve cash flow,” Chayt says. “They can improve their supplier relations because those people are paid on time and paid accurately. They might also be able to look at vendors of like kind and negotiate discounts.

“Especially in an economy where firms are not quite ready to start hiring more people yet because the confidence levels aren’t there, this frees up your existing employees and lets you redeploy them to some other more productive use than pushing paper around the desk.”

Comerica Bank.Member FDIC.

For more information about how Comerica Integrated Payables and the Comerica Commercial Card can help simplify your payables, contact your Comerica representative.

 

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