October 27th, 2021
As you know, working capital is enormously important for a company; it reduces the need for financing and ensures continuity. That being said, it is always wise to look at how you can improve it.
We are going to assume that you know the obvious tips for improving working capital, such as paying in installments or agreeing on lengthier payment terms. But did you know that automating your procure-to-pay process can also be very effective in improving your working capital?
Automating your entire procurement process by digitalizing your document flows can improve your working capital in several ways:
Better Inventory Forecasting
Too much inventory means it will take longer to get your money. Too little inventory, on the other hand, means you sometimes have to refuse orders (and potentially lead your customer to choose a competitor). Both scenarios have a negative impact on working capital.
When the procurement process is fully digital, you are able to automatically place orders with your suppliers the moment your inventory levels drop. These levels are accurately represented in real time because relevant data is extracted from the digital (EDI) exchanges.
Purchase orders (EDI 850s), product activity data (EDI 852s), advanced shipping notices (EDI 856s), and more, provide insight into the purchasing process, thus enabling stock forecasting. These forecasts can also be used by suppliers in a VMI program.
Quicker Processing Time
In many organizations, lengthy approval processes make it nearly impossible to approve invoices in time to earn an early payment discount.
Automating invoice processing saves time. It then becomes easier to qualify for early payment discounts and improve your working capital as a direct result.
Control Over Your Cash Flow
An intelligent AP solution provides real-time visibility into transactions and performance, resulting in total cash flow transparency and quick wins when it comes to improving your working capital. In addition, real-time reports provide you with additional insights and further enable you to take control.
Are You Convinced?
If you’re ready to improve your working capital through procure-to-pay automation, there are a few things to consider in 1.) your automation strategy and 2.) choosing the right provider.
Make Things Easy for Your Suppliers
Make sure your suppliers can send their invoices to you easily and in the way you want to receive them. Just because you are ready to start automating (further), doesn't mean your suppliers are.
Give your suppliers options. Be sure to offer multiple ways for them to exchange documents, from a direct connection for suppliers that already have an EDI or e-invoicing solution to a supplier portal where suppliers can enter their invoices manually.
Don’t Underestimate the Value of Full Integration Capabilities
Nothing is more irritating than having to constantly switch between systems. Always choose an AP automation solution that offers seamless integration with any system.
Be Critical When Choosing a Provider
In addition to the above points, there are many other things to consider when selecting a provider that offers a solution that fits your business now and in the future. Whatever it is that you are after-AP automation, procure-to-pay automation, EDI or e-invoicing capabilities—this guide will help you to make the right call.