When was the last time you reviewed your accounts payable (AP) strategy? From how you pay suppliers and when, to how long it takes to pay an invoice, there’s more to AP than the process you follow. A strong AP strategy can give your organization leverage with suppliers and earn revenue for your bottom line. By being intentional about AP, you can find a great deal of cost savings and new revenue opportunities. It’s all about knowing where to look, and we have five steps to help you get started.
1. Stop paying suppliers with checks.While patients are moving away from checks, it’s harder for healthcare providers to make the change. But when you break it down, the cost of checks doesn’t make sense for your organization. Buying checks, stuffing envelopes, purchasing postage and physically mailing checks costs valuable time and money that can be spent more strategically elsewhere.
Instead, many providers adopt an ePayables or AP card program to replace paper-based payments. These programs can help reduce costs and even generate revenue – potentially turning your accounts payable department into a revenue-generating entity within your organization.
An ePayables or AP card program also has a higher level of fraud prevention, unlike checks. Checks are subject to many fraud risks, both internally and externally. Fraudsters can simply lift bank account information from a check or forge a signature.
2. Leverage multiple payment types to seize supplier benefits.Many successful AP departments create strategies around how and when they pay their suppliers. Using different payment types can help you access certain benefits. When it comes time to make a strategy, consider payment types that can generate revenue before the ones that don’t.
Having a variety of payment methods can bring other positive outcomes, like extending payment terms or receiving discounts, as well. Early payment discounts, supply chain finance and private network transactions can all generate positive yields.
The end goal is to pay the right supplier the right amount at the right time with the right payment type and to take advantage of discounts, extended terms or revenue generating opportunities. But getting there can take time you don’t have. That’s why we developed the CommerceHealthcare® Payment Hub, which takes care of set up with suppliers and creates an automated payment strategy that optimizes all payment types, generating revenue and cost-savings in the process.
It’s good to continue to evaluate your payment options and supplier preferences over time as well. The world of payments is an ever-changing landscape, and supplier acceptance trends and payment preferences are constantly evolving and growing.
3. Take advantage of early payment discounts.Early payment discounts are far more common than you might think. Purchasing departments work hard to negotiate discounts, so it’s important for AP departments to take advantage of them when they can.
It’s common for purchasing to negotiate a ten-day discount. The problem is that it’s difficult for many departments to approve and pay an invoice that quickly. If your organization’s average invoice approval process takes up to 20 days, it might seem unrealistic to do it twice as fast.
Your suppliers want to get paid as quickly as possible, and they’ll make it worth your while. Taking advantage of early payment discounts means big savings and improved supplier relations. If you can let your money go a few days early, you should. If you can’t, there’s still a way for you and your suppliers to meet in the middle. Fortunately, there are solutions available that can help bridge the gap between your needs and your suppliers’ wants.
For instance, with CommerceHealthcare® Payment Hub, our team contacts suppliers to negotiate discounts, we pay the invoice upfront on the business’s behalf, and they can wait until the natural due date to pay. That way, they can seize the discount and earn extra revenue without needing to pay sooner.
4. Submit a spend file to your provider regularly.As you add and change suppliers over time, it’s important to let your AP program provider know. Not doing this regularly impacts your provider’s ability to accurately size your program. This can affect pricing, revenue share and other opportunities.
Timing is critical when you add a new supplier. The earlier you can start a conversation with them about your preferred payment method, the more open they may be to accept an electronic payment instead of a check.
Your suppliers’ acceptance practices may change over time as well. By regularly submitting a spend file, you may uncover new opportunities to cut more checks out of your process.
Make a practice to submit a spend file to your provider on a regular basis. You may be happy with the spend mix and revenue share that comes with an AP program – but without regular checkups, your revenue may erode year-over-year due to suppliers opting out, your organization changing suppliers and more.
It’s impossible to do a one-size-fits-all payment strategy and expect it to work for all your suppliers. Your provider should review your AP with a consultative approach. As the payment landscape shifts, you need to be able to make corrections and modifications while anticipating changes in the marketplace.
5. Incorporate ongoing enrollment.Many AP programs include enrollment, but only do it once. But it’s common for a five-year-old AP program to lose efficiency and impact year over year. To combat this, consider incorporating ongoing enrollment.
Suppliers who enrolled initially may unexpectedly change their policy and decide to pull out of your program. If you’re not continuously enrolling new suppliers and reassessing current ones, there is no opportunity to capture additional volume. Your AP program will naturally become less effective due to this “supplier erosion”.
Find a provider who goes the extra mile with your AP program, and make sure their enrollment methods fit your business. Beware of methods like the following that can be harmful to your AP strategy:
- Only enroll the top 20% of your suppliers
- Choose a dollar threshold to target
- Outsource the enrollment campaign to another organization
- Rely on you to enroll vendors yourself
- Only offer one payment type that may not be compatible with many of your suppliers
The key is to seize available resources, think holistically about when and how you make payments, and work with a provider that pays close attention to your unique needs. Keep evaluating your AP strategy to continually identify more areas for streamlining and savings and to make sure you’re fulfilling your revenue potential. Learn more about CommerceHealthcare® AP solutions or contact us to get started on a free, no-obligation spend analysis.
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