The procure-to-pay process can be long, arduous and unavoidably tedious. Worst of all, friction within the process can lead to payment challenges that, if not rectified, can greatly impact an enterprise’s working capital requirements.
This happens when invoices are paid earlier than required. For example, many payment terms require that an invoice will be paid 30 days after goods are received. If executed as planned, there aren’t any issues, and working capital requirements will proceed as expected.
However, when a business accidentally pays an invoice early – due to inaccurate due dates, a change to the delivery date or some other issue – everything changes.
The company will need more money now, money that may not be readily available. Regardless, those funds could instead be allocated to other parts of the business, allowing for greater growth and investments versus unnecessary early payments.
The impact may be larger than anticipated. In over 200 AP projects, we have seen that an average company with about $500 million per year in invoices will require an additional $20 million in working capital to fund early payments. With a 7% cost-of-capital, that company will incur $1.4 million in excess working capital costs. And that assumes the cost-of-capital expenses remain modest; if they are higher, the working capital costs will increase accordingly. PwC has stated that companies around the globe could recoup over 1.3 trillion euros, which could be released from working capital by better management of finance processes.
It would be too time-consuming and too costly to check all of these invoices manually. But enterprises cannot afford to let the friction build within their systems and processes, which will lead to early invoice payments. If left unchecked, these problems will only continue, increasing the strain on working capital.
In order to avoid these issues in the future and ensure they don’t return, businesses need to take advantage of the very best technology available. And the only reliable, consistent solution is one that analyzes the process flow of all invoices, intelligently identifies possible offending invoices, and enhances the process, by ensuring each invoice is paid at the optimal time. Businesses need a solution that utilizes the power of process mining, an analytical discipline for discovering, monitoring, and improving real business processes.
Process mining can speed up an enterprise’s time to reduce friction by identifying common friction points in the financial processes. With machine learning, it is then possible to receive recommendations for the next best actions that should be taken by accountants and other financial professionals – to ensure you set the optimal payment for each invoice. Process mining can also help businesses improve their productivity and reduce their compliance pain.
By leveraging process mining, enterprises can ensure invoices are paid exactly when it is best for the company. There are multiple factors to consider, including multiple payment terms per vendor, changed delivery dates, or simply payment run coordination. Process mining can digest all of these inputs and spit out the best date to pay each individual invoice.
This will allow your AP team to avoid the pitfalls associated with early payment. They can free up valuable working capital to function as intended and actually work for the business.
More importantly, businesses won’t encounter any additional, unnecessary fees or have to continually monitor for early payment issues. They can rest easy knowing that the problem has been taken care of and is handled in a smart, efficient manner that allows their team to focus on more important parts of the business.
