How growth-minded companies turn accounts payable into a competitive advantage.

As business leaders map their growth strategies, banking specialists say there is a high-impact lever within every company’s back-office operations that often goes overlooked: accounts payable.

While the AP department’s primary function is to send money out the door, new technology makes it possible for businesses to pay vendors while also lowering costs, reducing risk, better managing working capital and even generating additional revenue.

“Having the technology in place to do more with less is a huge competitive advantage,” said Makenzie Fox, a senior account executive for Commerce Bank’s accounts payable solutions team in Nashville.

Fox and Jason Turner, the vice president and national solution consulting manager at Commerce Bank, recently shared the key benefits of AP automation and why a strategic approach to implementation is essential to realizing its full potential. In their experience, even companies that have automated significant parts of their business sometimes still rely on manual processes for issuing payments.

Bringing automation to “mission-critical invoices.”

Turner recalls meeting with one AP leader and noticing a red folder sitting in a prominent place on her desk. That folder contained every critical invoice for the business. She would carry it through the office, collecting accounting codes and signatures before processing payments.

“That’s not as uncommon as you might think,” Turner said. “Not everyone has a red folder, but they have a very manual process for these mission-critical invoices.”

Here are some of the key benefits of AP automation:

More efficient use of staff: freeing up time to grow.

A few enterprise resource planning systems can convert paper or emailed invoices into digital records, but many require solutions from outside providers, like Commerce Bank, to eliminate most of the data entry by feeding it into the ERP electronically. They make it simple for a staff member to double-check the data for accuracy, match invoices to specific expenses, route them to approvers with reminders, and provide real-time visibility to business leaders. This frees up time for the AP team to focus on handling exceptions and other strategic work.

The efficiency gains can be significant, Fox said. “I’ve seen some companies that are struggling to acquire more businesses or otherwise grow because their dated processes take too long,” she said.

Reduced payment costs.

Generating physical checks costs $3 to $5 per item on average, and some ACH and wire payments also carry fees. AP automation makes it easier for businesses to choose the most cost-effective payment types for each transaction.

Even businesses that regularly use electronic payments for vendors often still make payments to individuals by check. Technology makes it possible to seamlessly shift these payments to virtual cards that can be accessed in mobile wallets.

“A school district, for instance, can preload virtual cards with money that teachers can use to buy classroom supplies or pay for incidentals during a conference. This can replace managing expense reimbursements,” Turner said. “The district can push money to a virtual card that teachers can access and use on their phone. It’s a controlled process, but at the same time it is user-friendly for that individual.”

Improved working capital.

Technology-driven payment systems make it easier for finance teams to make payments according to the terms of each contract, controlling when money leaves the business. Additionally, virtual card payments often have a credit component, which allows the supplier to be paid to term and the buyer to fund that payment at a later date.

“That’s where a payment strategy can come into play,” Turner said. “There is value in holding on to your cash, especially in the rate environment we have.”

Generating revenue.

Many financial institutions offer businesses a revenue-sharing agreement on some forms of electronic or digital payments.

“This takes what traditionally is a cost center and turns it into a profit center,” Fox said.

Exploring what’s possible with a long-term AP partner.

When Turner and Fox consult with business clients about AP systems, they often start by conducting a payment cycle review, free of charge. These reviews typically take a few hours to a half day and include clarifying priorities and mapping the company’s current payment processes. The reviews routinely identify areas where AP automation can deliver significant results, according to Fox.

“It’s exciting for me to meet with those AP managers who are burning the midnight oil, getting out the checks and chasing down invoices,” she said. “They see our solutions and breathe a sigh of relief because they know AP automation can really help them and their team.”

The action items and benefits often vary by industry, Fox said. Healthcare companies, for example, tend to find ways to minimize manual workflows, allowing their existing teams to do more without having to hire in a tight labor market. In contrast, construction companies typically use AP automation to create more predictable cash flow in a field where long lead times heighten the need to optimize working capital.

Successfully introducing new technology always requires thoughtful change management and having outside support is key, according to Turner. He recommends working with a financial partner who will help make adjustments as the business grows.

“At Commerce, we have an entire department focused on accounts payable solutions,” Turner said. “As part of the CommercePayments^® business line, this specialization allows us to bring a lot of value to the organizations we work with.”

CommercePayments^® solutions are provided by Commerce Bank.