The relationship between Accounts Payable & Spend Management
Spend management and accounts payable are inextricably intertwined and inter-reliant on one another. In some ways, you can’t have one without the other, as they are cohesively united to reduce costs, maintain supplier relationships, optimize company spend, and ensure quality. When accounts payable and spend management are managed in one streamlined dashboard using a singular system, the results are enhanced, and the benefits to the company are multifold.
This article will cover the following topics:
- Defining AP Automation & Spend Management
- The relationship between Accounts Payable & Spend Management
- Benefits of linked AP & spend management processes
AP Automation & Spend Management Defined
AP automation describes the automation of the tasks involved in the accounts payable process. Accounts payable is a multifaceted department with many moving parts. The workflow can be completed manually; however, this leaves a large margin for error. More and more companies have come to realize that automation in AP is no longer a luxury but, rather, a necessity. This is why many AP automation solutions have arisen to meet the needs of a modernized business climate.
Spend management is the way a business manages the company spend, or company dollars. This involves the procurement of goods and services from vendors as well as the management of spend initiated by employees using company dollars. The overall management of company funds includes procurement, outsourcing, supply chain management, e-procurement, and procure-to-pay. Efficiency in spend management results in overall operational efficiency, meeting budgeting goals, and reduced cost.
The relationship between Accounts Payable & Spend Management
Accounts payable and spend management are two components of one integral process that is vital to the company. By linking both of these processes, a business can ensure that there is increased cost control, accuracy, and enhanced efficiency. If spend management is not handled well, then the result is a high cost to the company. This shows up in the form of outstanding invoices, unexplained employee spending, and other spend risks. This affects the accounts payable department in situations like missed invoice payments that can affect supplier relationships. When a business works cohesively to unite and streamline the workflows for both AP and spend management, the result is improved supplier relationships, meeting target cash flow goals, and better overall efficiency.
The interplay of AP and Spend
Accounts payable covers spend management processes after they have been completed. This can often be seen in the case of procurement transactions. Once the vendor has sent the products and the company has paid for them, accounts payable will need to reconcile the invoices. In the same vein, spend management uses data gleaned from accounts payable processes to inform future spend decisions. Spend management optimizes accounts payable which feeds data that is then used by spend management, and the cycle continues onwards.
Understanding the interconnectedness of the accounts payable department and the spend management division of a company is paramount. With this awareness, companies can make more informed decisions that benefit both departments instead of treating each system as a completely independent process. This awareness can inform decisions about creating the most optimized workflows for both AP and spend management.
Benefits of linked AP & Spend Management processes
There are many benefits of linked accounts payable and spend management processes. Being cognizant of the benefits of linking these two processes can benefit companies seeking to enhance their operational efficiency. Below are five of the main benefits of linking AP and spend management.
Connecting accounts payable and spend management results in a much larger ROI for companies of all sizes and stages of development. This can be seen especially when copious dollars are spent on redundant and unnecessary tasks such as matching bills to purchase orders. When the two systems are linked and automated, these manual processes are done automatically, and the company achieves a significant return on the investment of time spent on the same task. In addition, invoices can cost upwards of $40 each for a company to process. By implementing the right software, companies can cut these costs exponentially, thus improving their ROI.
Human error is inevitable when completing manual processes. Enterprises can avoid human error by combining AP and spend management through a singular, automated system. This saves time and eliminates the risk of expensive mistakes that could otherwise set the company back financially.
Supply chain management
A primary benefit related to linking AP and spend management is that of enhanced supply chain management. The supply chain includes vendor approvals and requests to receive quotes, vendor contracts, and vendor portals. With automated accounts payable and spend management interconnected, the supply chain system can be optimized. This shifts the focus from simply cutting costs to determining how to strengthen supplier relationships.
Managing supplier relationships is a key component of supply chain management. When there are errors in the accounts payable process, this immediately impacts the supplier relationships. From errors in data entry and invoice processing come mistakes in vendor payments. These mistakes can cost the relationship of a quality vendor and can lower the value of the company in the supplier’s eyes. However, with automated spend management and AP processes, manual entry errors can be avoided. An added benefit is that, with automated payments, businesses can take advantage of early discounts that come from paying off the invoice ahead of schedule or on time. The result of optimizing the AP process in conjunction with spend management is improved supplier relationships and better customer service.
A faulty and inefficient AP process doesn’t provide the necessary insight into company spending that would otherwise be needed to optimize spend management. Without an effective AP process in place, a business can be affected by poor cash flow due, in part, to an inability to implement cost-saving initiatives. With an automated AP and spend management process in place, a business can get the data they need to make informed spend decisions, enhancing the company’s cash flow.
Making Smarter Decisions
Often, when the company budget has been exceeded, the resulting response from CFOs can look like budget cuts, layoffs, bans on capital expenditure, and recruitment freezes. In a heavily manual AP system, these spending cuts are performed without the visibility of what is causing the company’s spend to be exceeded. With AP becoming automated, this problem is resolved as automation yields valuable data that provides the information CFOs need to make more informed decisions.
Business heads can use AP automation with spend management to better control spend, conserve cash flow, and improve their data visibility using spend analytics. With spend and accounts payable automation, business decision-makers get the real-time visibility they need to make company-wide spend management decisions that are more holistic and beneficial to the entire organization.
A Single Source Solution
Now that the benefits of automating AP processes and combining them with spend management are apparent, the next step is to figure out how to do this. Thankfully there is a single source solution that handles automating your AP process and connecting finance processes. PayEm offers leading-edge cloud-based software that provides connected finance solutions for today’s growing businesses, the benefits of which include:
- Automated and connected finance systems
- Real-time data analytics and visibility
- Set payment rules and limits for better compliance
- Automated & custom approvals
- Simplified multi-territory management
- Auto categorization and sync with existing ERP systems
- Issue virtual or physical cards for better spend control
In just one platform, you can easily automate every facet of the accounts payable process while also getting the visibility you need into company spend. PayEm provides connected finance solutions that sync easily with your existing ERP systems. Curious to learn more about an automated AP and spend management solution for your team with PayEm? Contact PayEm’s experts for a commitment-free, no-cost demo of the platform.
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