Ask any modern business decision-makers about the essence of trade accounts payable, and you'll soon realize that it's one of the greatest tasks they face. After all, businesses must pay their debts, and they cannot afford to get this wrong.
Managing invoices accurately and promptly is almost an art, and it’s the key to maintaining good vendor relationships. It's essential to understand the critical relationship between trade accounts payable and vendor relations and its impact on your company's bottom line.
In this article, we'll look at:
- What are trade accounts payable?
- How trade accounts payables are intertwined with procurement and vendor relations
- Managing the accounts payable process and its effect on profitability
- Why trade accounts payable matters
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What are trade accounts payable?
Trade accounts payable (also called trades payable) refers to an amount that suppliers bill a company for delivering goods or providing services in the ordinary cause of business. When paid on credit, the company enters the billed amounts in the accounts payable module of their accounting software or balance sheet.
Any amounts owed to suppliers that the company immediately pays in cash are not part of trade account payables since they are not a liability. In the accounting system, businesses record trade accounts payables in a separate accounts payable account. They also credit the accounts payable account and debit whichever account closely represents the payment's nature, such as an asset or an expense.
It is worth noting that the classification of trade accounts payables is ‘current liabilities’ since they are payable within a year. When that's not the case, the business can classify the trades payables as long-term liabilities. Since long-term liabilities tend to have an attached interest payment, the accountant is more likely to classify them as long-term debt.
Trades payable vs. non-trades payable
One significant difference between the two is that you usually enter trades payable into the accounting system through a special module that automatically generates the required accounting entries. On the other hand, you typically enter non-trades payable into the system using a journal entry.
Trades payable vs. accounts payable
It's normal for some people to use the two phrases interchangeably, but they have a slight but important difference. Trades payable refers to the money you owe vendors for inventory-related goods — for example, business supplies or inventory. On the other hand, accounts payable include all your short-term debts or obligations, including trade payables.
Invoice Tracking Template
Download the invoice tracking template to avoid costly mistakes, clarify financial patterns, and track spending throughout the year.
How is trade accounts payable intertwined with procurement and vendor relations?
Traditionally, your procurement department is responsible for maintaining vendor relationships, including contract negotiations, the pursuit of discounting opportunities, compliance to terms, and repayment processes.
Still, it is essential to know that the trade accounts payable process also plays a crucial role in the daily business mechanisms to keep vendor relationships on a positive track.
Research reveals that 47% of companies pay one in ten invoices late, while 16% admit that they pay one in five invoices late. Only a paltry 5% of businesses assert that they always pay their obligations on time, whereas one in 12 firms never monitors its payments processes at all.
Late vendor payments risk causing disruptions in the supply chain and cash flow. Some of the causes of late invoice payments include lack of automation, slow internal processes, lack of capacity to manage invoice volume, and administrative error. Unfortunately, all these are mere excuses for poor performance. Besides, vendors shouldn't have to accommodate internal process flaws.
Supporting a strong, continuous supply chain
Business vendors are crucial to your company's success. Consider, for example, the retail and manufacturing sectors. Regular business relies on vendors to provide the necessary products, parts, and raw materials to complete their end offering. As such, these companies can't afford to lose their key vendors due to inefficient trade accounts payable processes resulting in late, lost, or faulty payments.
Automating your accounts payable workflow speeds up invoice processing and ensures your vendors receive payments accurately and on time. In return, vendors are likely to deliver goods swiftly and offer future discount opportunities.
47% of companies pay one in ten invoices late, while 16% admit that they pay one in five invoices late.
Invoice Tracking Template
Download the invoice tracking template to avoid costly mistakes, clarify financial patterns, and track spending throughout the year.
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Profitability impact of trade accounts payable management
Just like other current assets or liabilities, trade accounts payable have a significant impact on your profitability. The single most critical thing you can ever do to maintain good vendor relations is pay your bills on time. Unfortunately, accounts payable management can get hectic and unwieldy. As your business grows, so does its suppliers and the invoices you have to pay.
Good vendor relationship management requires a mutually beneficial relationship between you and each supplier or vendor. A positive relationship is a win-win for all parties. Vendors will cut you good deals, suggest new and better products, and work with you on delivery policies and times.
It is prudent to cultivate good supplier relationships because they also mean increased company efficiency. To do this, always ensure that you:
- Pay your bills on time.
- Don't cut off suppliers without a valid reason.
- Keep open lines of communication.
- Elicit trust with all of your vendors and suppliers, regardless of how many you have.
In return, a good vendor could respond by offering you their best trade credit terms possible, hence maximizing your profitability.
One critical metric in any business's financial management process is its cash flow, which comes from business operations like financing and investing. It's worth noting that you generate profit from sales after paying all expenses.
Inadequate monthly cash flow means you won't have enough cash at hand to pay your bills on time, which means trouble with your suppliers. Often, vendors offer cash discounts if businesses pay within a specified number of days, like three months. That discount can have a significantly positive effect on your profitability.
Now, imagine getting cash discounts from all of your vendors and having enough cash on hand to take them. It will result in a significant effect on your net profit margin.
Why accounts payable management matters
The accounts payable management process focuses on ensuring that you pay your bills timely without choking cash flow. It further ensures you have sufficient liquidity to fund process optimization, investment opportunities, and product innovation to reduce your ongoing costs.
It's critical to optimize your accounts payable management, particularly for small business owners who rely heavily on their working capital compared to larger companies. Below are some reasons why accounts payable matter:
- Accurate and efficient workflows in your trade accounts payable system provide transparency and accuracy in your cash flow tracking and planning.
- Better cash flow management allows for more accurate budgeting.
- Effective management provides actionable insights that you can leverage to enhance contract negotiations and strategic sourcing. It also allows you to build stronger vendor relationships that give you access to better discount payment terms.
How do you audit trade payables?
The best practice to follow is to review the recorded cash disbursements subsequent to the corresponding balance sheet date. It allows you to determine which period to apply the related payables and whether it belongs to the previous one. Identifying unrecorded trade accounts payable enables you to manage all your current liabilities. You can also make payments on time to safeguard your vendor relations.
Trade accounts payable is among the essential tasks to get right. The risks of failure are too significant to leave to chance. A poor trade accounts payable process can damage your vendor relations and open you up to fraud risk.
Order.co helps finance and operations teams spend less time placing and managing orders. Peloton, Hugo Boss, XpresSpa, SoulCycle, and WeWork all use Order.co to:
- Place orders from one cart and approved catalog automatically across every vendor.
- Track real-time spending.
- Make actionable purchasing decisions.
Order.co automates your purchase orders, tracks delivery issues, saves you money, offers spend tagging and visibility, consolidates billing and vendor transactions, and unifies all your trade accounts payable data under one platform. To get started, schedule a free demo today.
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Procurement seems pretty straightforward: A company needs something, and the procurement department figures out where and how to buy it. The difference between surviving and thriving as a company, however, is in how strategic and intelligent your procurement process is.
Intelligent procurement, or the strategic process by which companies manage their vendor-related spend, is key for companies that are looking to succeed, particularly in a macro environment defined by uncertainty.
As companies look to an unpredictable future, they should prioritize the implementation of intelligent procurement, which helps them cut costs, reduce inefficiencies, and mitigate risk.
What is procurement?
Procurement is the process a company follows to obtain the supplies and services it needs to run its business.
There are two main types of procurement: direct and indirect. Together, these account for most of the purchases made within the company. Effective direct and indirect procurement requires a strategic process and transparent oversight of organizational spend.
What are the types of procurement?
Direct procurement: Direct procurement (also known as direct spend or direct cost) is, according to GEP, “the process of obtaining raw materials, resources, goods and services that are utilized in the core operations of a business.” If you run an ice cream shop, for example, the cost of ice cream and cones would be considered direct procurement. Companies optimize direct procurement by strategically sourcing the most reliable and cost-effective vendors, automating purchases of frequently used items, and buying in bulk to achieve the lowest possible unit price.
Indirect procurement: According to SutiSoft, indirect procurement involves “the expenses incurred for materials, services and maintenance required to operate [your] business.” At that same ice cream shop, the cost of freezers, air conditioning, and email marketing software would be considered indirect procurement. According to McKinsey, “most companies do not have mechanisms to monitor indirect categories and reflect their performance on financial statements.” Without the ability to identify exactly where employees and departments are spending money, companies cannot hope to control and curtail that spend. Thus, effective indirect procurement processes require organization-wide spend visibility for procurement teams.
Choose the Right Procurement Technology With This Decision Matrix
There are A LOT of procurement softwares out there. Make sure you're choosing the right one for your business.
What procurement isn’t
Procurement is often used interchangeably with “sourcing” or “purchasing,” but it shouldn’t be. Each is a distinct component of the overall procurement process. Both sourcing and purchasing are most effective when implemented as part of a holistic intelligent procurement process.
Procurement vs. sourcing
Sourcing is one component of procurement. It refers to the process of selecting a supplier or vendor. Identifying an item or service to meet a business need, culling a list of vendors, and comparing prices across vendors are all part of the sourcing process. The ultimate goal of sourcing is to minimize purchasing costs so the business can achieve its ultimate goal: maximizing ROI.
Sourcing is most effective when combined with intelligent procurement, which eliminates repeat purchases across departments, centralizes sourcing tasks, and automatically compares costs across vendors. Strategic sourcing, which allows companies to identify cost-saving opportunities and mitigate risk, is a key element of intelligent procurement. Order.co’s software helps companies source strategically.
Procurement vs. purchasing
Purchasing is another component of procurement and refers to the distinct act of buying goods and services for your business. It does not refer to a formal process or policy as procurement does. Purchasing can add costs and inefficiencies to the business when conducted independently of a strategic procurement plan. Impulsive purchasing by various employees who have not conducted appropriate cost comparisons or due diligence can lead to cash leaks, data security breaches, and even business-continuity disruptions.
Like sourcing, purchasing is most effective—and most controlled—when combined with intelligent procurement. Intelligent procurement tools like Order.co streamline haphazard purchasing, add controls on employee spending, and improve the purchasing experience for all parties. By implementing Order.co’s single catalog and cart for all its purchasing, for example, BLANKSPACES was able to achieve 93% faster ordering and ensure perfect spend compliance.
Procurement = sourcing + purchasing
At its core, procurement is the combination of sourcing and purchasing. It is, according to Thomasnet.com, an “all-encompassing strategic array of processes that includes both purchasing and sourcing.” The development of a strategic procurement process implements safeguards—like strategic sourcing and controlled spend—that protect against some of the risks inherent to sourcing or purchasing alone.
Effective procurement doesn’t need to be complicated. It’s essentially the combination of a few important steps:
- Evaluating spend across the business
- Identifying opportunities for cost-savings
- Creating policies and controls around future purchasing
- Establishing a system for approvals
- Implementing a vendor selection-policy
Companies that complete these necessary steps are on their way to developing an intelligent approach to procurement. Businesses that utilize intelligent procurement optimize sourcing and purchasing, mitigate risk, and cut unnecessary costs.
What is intelligent procurement?
Intelligent procurement is the process by which companies manage all aspects of their vendor-related spend in one central digital place so they can gain a holistic view of that spend. Companies that implement intelligent procurement gain better insight into and control over their spend.
Digital transformation has accelerated the rise of intelligent procurement by leveraging software and automation to reduce costs and risks with minimal human oversight. Intelligent procurement platforms like Order.co connect businesses to thousands of vendors via one centralized platform, implement rules and restrictions to reduce rogue spending, streamline invoice management, automate ordering, and more.
Intelligent procurement protects against supply-chain risk and empowers companies to become more sustainable.
Transparent, holistic insight into total spend makes procurement easier. Procurement departments that know where and how the organization spends money can more easily cut costs, make decisions, and identify potential problem areas. The ultimate result of better control over organizational spend? Greater efficiency, lower costs, and reduced risk.
To their detriment, most companies do not apply an intelligent, dedicated strategy to their procurement process. Most companies handle spend in silos, which creates confusion, inefficiency, and unneeded expense for the organization.
Why is intelligent procurement so important?
The main benefit of intelligent procurement is to save companies money. This, however, is far from the only upside of an intelligent procurement process. When applied strategically, intelligent procurement also protects against supply-chain risk and empowers companies to become more sustainable.
Intelligent procurement helps companies save money
By definition, procurement is a massive cost center: it is the hub of corporate expenditure. But managing spend more intelligently has multiple benefits. Companies that implement intelligent procurement can improve their bottom line.
Moreover, intelligent procurement helps protect companies from macro trends and events that create uncertainty for the business. According to McKinsey, companies with high-performing procurement departments have historically recovered from economic crises more quickly. The companies succeed thanks to their ability to respond to supply-chain disruptions, reduce costs through automation, and make more agile business decisions due to insights gleaned from digital tools.
As procurement leaders at The Future of Customer Engagement and Experience write, unpredictable events happen—the past 10 months exemplify that fact all too well—and businesses should prepare for them: “The solution is not planning for every possible contingency. How could we? Rather, it’s gaining visibility into your systems—increasing efficiency and flexibility—to create resilience.”
Intelligent procurement mitigates supply-chain risk
Supply-chain management is a critical responsibility of the procurement department. Intelligent procurement can ensure business continuity when the supply chain is disrupted.
Supply chains are inherently risky. According to McKinsey, “today’s complex and long supply chains are almost inevitably subject to disruption.” Multiple factors—from trade disputes and natural disasters to human error and shortages caused by events like the COVID-19 pandemic—cause these disruptions. Then, because every supply chain comprises multiple links, a domino effect of trouble (and costly delays) occurs when even one is disrupted.
How intelligent procurement creates an efficient, risk-free supply chain
To minimize risk, companies need a holistic view of their spend and their vendors in order to identify the origin of supplies and make adjustments as needed in the face of disruptions. Intelligent procurement platforms like Order.co provide this transparency, which enables agile action by procurement departments when business continuity is jeopardized.
Intelligent procurement helps protect companies from macro trends and events that create uncertainty for the business.
Moreover, intelligent procurement tools allow procurement teams to immediately identify and cost-compare new or replacement vendors so unexpected hiccups don’t result in exorbitant costs. Order.co’s intelligent procurement solution, for example, connects businesses to thousands of vendors and automatically sources out-of-stock or lost items from comparable sellers with comparable prices, ensuring business continuity even amid disruptions.
Plus, intelligent procurement platforms keep track of deliveries, so companies can easily identify delays and problem-solve more quickly.
Intelligent procurement can lead to sustainable procurement
When you implement intelligent procurement, you’re more likely to reach sustainable procurement, which, as we said in our piece on the topic, ensures all the way down the line that “your suppliers—and your suppliers’ suppliers—are proactively seeking ways to minimize waste and reduce their carbon footprint.”
It’s important to aim for sustainable procurement because, according to IBM research, a full 62% of consumers would be willing to change their shopping habits to support more sustainable businesses. That effectively means that companies cannot afford not to be sustainable. Those companies that pursue short-term savings might find themselves losing revenue when discerning customers and investors take their dollars elsewhere.
Sixty-two percent of consumers would be willing to change their shopping habits to support more sustainable businesses.
Companies can augment their approach to sustainability by taking a long-term view of their procurement efforts. Business leaders tangibly demonstrate their values to key constituents when they source from sustainable companies and institute sustainable practices.
How intelligent procurement can help achieve sustainable procurement
Companies can achieve sustainable procurement by leveraging procurement tools to identify and cost-compare sustainable vendors. An intelligent procurement system, which gives companies holistic insight into their spend, reveals which vendors are sustainable and allows companies to track that information in one central place, so they can more readily source and purchase from such vendors going forward.
Sustainable procurement is an excellent example of the necessary teamwork between intelligent procurement tools and the intelligent humans who compose an effective procurement department. Individual employees can leverage the benefits of intelligent procurement platforms to make needed department-wide policy decisions that bolster a company’s reputation, generating value that transcends simple dollars and cents.
Choose the Right Procurement Technology With This Decision Matrix
There are A LOT of procurement softwares out there. Make sure you're choosing the right one for your business.
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How to achieve intelligent procurement
There are several components of an intelligent procurement process. To achieve it, procurement leaders must do the following:
Deploy an effective procurement strategy and process
Intelligent procurement requires strategic planning. Leaders need to devise an effective procurement strategy — a plan for purchasing business supplies that achieves two core objectives: risk reduction and cost-efficiency. Then, they must implement a repeatable procurement process.
Why is an effective procurement strategy and process important?
Procurement is inherently risky. Procurement departments necessarily rely on third parties over which they have little control. Without an effective procurement strategy, procurement departments find themselves constantly putting out small fires: recurring purchases made by an employee who has since left the company, for example, or duplicate purchases made by members of different departments. They may find themselves navigating relationships with unreliable, noncompliant, or cost-ineffective vendors. They may be constantly policing maverick spend among employees. And, inevitably, they will devote more of their own team members’ time to handling inefficient manual processes.
A defined strategy and process help mitigate these risks. Moreover, an effective strategy helps the department run more smoothly by keeping information organized, simplifying invoicing, and creating a transparent spend management environment. Perhaps most importantly, an effective procurement strategy helps build a lean operating model that decreases wasteful ad hoc spend.
How to craft an effective procurement strategy
Procurement departments need to first identify all sources of spending within the organization. Spend management software tools like Order.co can help companies organize their spending sources in one central place, so they can easily identify and analyze spend across departments.
Procurement departments can more easily predict future costs and identify opportunities to reduce them once they’ve identified sources of spend within the organization. Order.co’s software lets teams automatically compare prices across vendors, so they can guarantee they’re getting the best value for each product and service they purchase. They can also implement policies that control maverick spending by employees and grant the procurement department greater control over the organization’s total spend.
Without an effective procurement strategy, procurement departments find themselves constantly putting out small fires.
Companies can devise a strategy that safeguards against unknown expenses by gaining a comprehensive understanding of the organization’s costs and identifying potential risks that could increase them. Effective procurement departments work closely with finance teams to allocate budgets to various departments while making sure to include a cushion that protects against unknown future expenses.
Today’s best procurement strategies incorporate technology, which increases efficiency by minimizing human busywork (and associated human error) and reduces costs. Automation improves procurement strategies in multiple ways: by easily comparing costs across vendors, bundling orders, organizing information, and reducing time spent on purchasing, among other benefits.
Leverage procurement technology and procurement software
Technology is perhaps the single most important contributing factor to an intelligent procurement department. Procurement technology and software drive efficiency by automating processes and providing holistic insight to spend across the organization.
Why use procurement technology and software?
Historically, procurement requires a lot of time and manpower. The work of sourcing, reviewing and approving purchases, managing vendor relationships, and keeping track of invoices is both necessary and repetitive. When conducted manually, these tasks monopolize employees’ time and introduce more opportunities for human error.
Procurement technology automates much of the unwieldy and inefficient manual work that claims so much of employees’ time. Moreover, implementing technology reduces risk by eliminating human error.
Ultimately, companies that leverage procurement technology and software can reduce their overall spend. Technology automatically compares vendor costs, identifies instances of duplicate or off-budget spending, and offers detailed analytics that allow companies to evaluate their spend in real-time. According to a BCG study, companies that use digital procurement tools can decrease their annual expenditures by an average of 5% to 10%.
Technology is perhaps the single most important contributing factor to an intelligent procurement department.
The rapid pace of technological innovation has yielded a bevy of tools that procurement teams can add to their arsenals. Today’s companies face an unprecedented need to manage their spend and maintain control over an increasingly distributed workforce. Technology and software can help.
Procurement departments that automate elements of the procurement process can reallocate their employees’ time to higher-value initiatives that help protect the business from risk. Truly intelligent procurement combines technology’s speed and scale with humans’ instincts and knowledge to yield a process that’s efficient, cost-effective, and risk-reductive.
How to implement the right procurement technology and software
To choose the best tools for the business, procurement teams must first identify their overarching procurement challenges. Common obstacles include the following:
- Too much or not enough time spent on sourcing
- A fragmented, inefficient purchasing process
- Management of multiple vendors
- Confronting and reducing maverick spend
- Vendor errors that risk disruption of business continuity
Once they’ve identified their main challenge or challenges, teams can more easily research and select the technology needed to solve those problems.
Most teams will face more than one challenge. Rather than purchase multiple tools and cobble them together in a fragmented way, procurement departments can rely on Order.co to confront each of their concerns. Among industry-leading solutions, only Order.co’s platform can automate and improve every element of the procurement process, from strategic sourcing and vendor API integrations to purchasing and invoice reconciliation.
Companies that have decided to purchase procurement technology need to feel empowered to implement the tool(s) in a way that maximizes ROI. Even the best procurement technology would be ineffective if it could not integrate with a company’s existing tech stack.
Before deciding to purchase any procurement software, procurement departments should first consult the IT team to ensure API compatibility, then confirm company data-related vendor guidelines with the compliance team. Once they’re assured that their preferred tool can integrate seamlessly with the company’s API and that it will not violate data security policies, procurement teams should prepare to ask the right questions of vendor sales teams. To help in this endeavor, we’ve created this Decision Matrix, which helps procurement teams quantify their choices and make a data-driven decision when selecting procurement technology.
Intelligent procurement is key now and in the future
Effective procurement is anything but simple in modern companies. For one thing, 81% of non-executive employees can influence purchasing decisions, according to Think With Google. Additionally, oversight of increasingly distributed teams has become difficult, and unprecedented macroeconomic uncertainty threatens business continuity in new and unexpected ways.
The result, at most companies, is a siloed procurement process. Purchasing is fragmented and haphazard across the organization, which steadily increases unnecessary costs and exposes the business to needless risk.
81% of nonexecutive employees can influence purchasing decisions
It doesn’t have to be this way. Procurement can be a tool businesses deploy to help them become leaner, more efficient, and more risk-proof. Forward-looking companies can use procurement to protect their organizations and bolster their bottom lines.
To get there, companies need intelligent procurement. They need the tools and technology that streamline systems, offer organization-wide oversight, and automate historically inefficient procurement tasks. Companies that implement intelligent procurement can cut costs, increase efficiencies, reduce risk, and operate more sustainably. Order.co can help.
Procurement is a vital component of healthy, efficient, and cost-effective organizations. Companies that take a thoughtful, strategic approach to procurement will be more likely to succeed—both now and in the future.
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Accounts payable (AP) and notes payable (NP) are often used interchangeably, but in reality, they operate differently and serve distinct purposes within your financial strategy.
To properly manage either payable category, granular spend visibility is essential. Without it, the benefit of strategic financing can be diminished or even become a vector for financial risk.
We will define and contrast accounts payable and notes payable and illustrate how financing strategies offer maximum growth opportunities when paired with a dynamic procurement management tool. First, let’s get a clearer understanding of the differences between AP and NP.
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Accounts payable and notes payable defined
Accounts payable and notes payable are liabilities recorded as journal entries in a general ledger (GL) and on the company’s balance sheet.
Accounts payable refers to short-term liability accounts incurred for purchases with vendors and suppliers on credit. Notes payable are long-term liability accounts incurred through financing by banks and other lending institutions. Many business owners and managers assume accounts payable and notes payable are interchangeable terms, but they are not.
Let’s look more closely at the differences:
Accounts payable (AP)
- Short-term debt resulting from purchasing goods and services. These credit purchases are due for repayment within a year or less. (In practice, most suppliers seek Net 30 repayment terms.)
- Purchases do not incur interest within the repayment period and discounts may be offered for early payment.
- These short-term loans are non-collateralized. As long as invoices are paid promptly, suppliers will continue to fulfill new orders.
Notes payable (NP)
- Longer-term obligations to vendors or lending institutions. They have specific terms and maturity periods of either one year or less (short-term) or more than one year (long-term).
- Backed by written promises to repay (called promissory notes) that outline payment terms. Notes include the principal amount issued by the lender, interest payable, payment interval, and security or collateral terms. These elements are encapsulated into a formal lending agreement between the borrower and lender.
- Notes payable are customarily funded by banks, but they may also be paid to other financial institutions.
- Specific due date and repayment schedule. Notes payable are recorded and reported differently from accounts payable.
Financial Audit Preparation Checklist
Financial audits gives companies an objective read of their financial statements. Use this checklist to get started.
What are the benefits of long-term notes payable? (LTNP)
Leveraging financing can be an effective way of getting needed supplies and creating growth in the short term for companies that can generate revenue and adhere to repayment terms.
A long-term notes payable agreement helps businesses access needed capital attached to longer repayment terms (12–30 months).
- LNTP agreements are repaid with a set interest rate (like short-term notes payable).
- Long-term notes can be non-collateralized loans used for purchasing supplies or equipment. This gives businesses the funding they need without relinquishing any control over how those funds are used and without needing pre-approval from investors.
- Long-term notes payable provide the capital to invest in future growth, product development, and innovation, freeing up current assets for current operations.
- The LTNP is a low-risk financing option. It increases a company’s debt capacity and, therefore, displays deeper financial stability.
- Interest due can be deducted from the current year’s tax liability, lowering the overall cost of capital financing.
LTNP funding allows businesses to plan beyond day-to-day operations and fund innovation and growth. Using LTNP credit, you improve everyday control while building products and features to increase future revenue.
Pairing a financing strategy with a procure-to-pay solution
Leveraging the power of financing within your business allows you to grow faster, bring products to market within shorter timelines, and get needed supplies and equipment into service without waiting to raise revenue or constraining cash flow.
To make the best use of this strategy, you need strong visibility into procurement activities, and a granular understanding of your current liabilities. Without a process of strict budgetary control, the advantages you gain in securing long-term financing may be lost in poor cash management—you risk overspending on short-term liabilities and finding yourself unable to make payment obligations on your loan agreement when the bills come due.
Strong procure-to-pay (P2P) management helps companies keep a rein on spending and creates an audit trail and a business case for every purchase. Procurement software can build these guardrails into the ordering process so your stakeholders can get what they need without overspending.
You’ll get four basic areas of improvement from a good P2P process:
- Better visibility to optimize spend
- Reduced or eliminated maverick spending
- Streamlined supply chain management to avoid production delays
- Integrated invoice approval and payments to avoid fees and enable discounts
When you procure needed supplies using financing and ensure an effective budgetary process through P2P, you immediately see higher cash flow stability and lower costs. These conditions improve working capital to support growth further.
How does procure-to-pay (P2P) work?
Many businesses operate across several sites and via separate departments that replicate similar activities. It is common for the same goods and services to be needed by these separate departments and sites. Without an established P2P process, each location may end up generating its own supply chain, which often leads to frequent errors.
P2P systematizes every step of the procurement process:
- Requisitioning goods and services
- Selecting and evaluating suppliers
- Receiving and reconciling shipments
- Invoice approval and supplier payments
Goods and services can be requisitioned from the same suppliers across all departments, cleaning up your supply chain and greatly reducing errors.
Financial Audit Preparation Checklist
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10 Steps in the procure-to-pay (P2P) process
When each purchase follows a procurement plan with the following steps, it establishes accountability and ensures your business operations are transparent and efficient:
- Identify goods and services to be ordered.
- Raise a purchase requisition.
- Review and approve the requisition.
- Select the appropriate supplier based on known pricing, quality, and delivery standards.
- If there are no existing suppliers, create a list of potential vendors and issue requests for bids.
- Integrate requisitions to create a complete purchase order with specific order and delivery details for each site or department.
- Issue the purchase order to the supplier.
- Receive and approve deliveries.
- Check and approve supplier invoices with three-way matching.
- Pay supplier at the business’s discretion.
- Evaluate supplier performance.
While these steps are possible using a manual process, the volume of accounts and invoices in most companies requires automation to fully realize savings and control.
Using technology to power P2P success
When you understand the difference between accounts payable and notes payable, it is easy to keep them separate and use that difference to your advantage, meeting immediate capital needs and improving value creation.
Here are some of the top benefits of pairing strategic financing with P2P solutions:
Better finances: Good financing strategies with a solid procurement management system ensures your long-term plans are supported with smart short-term spending controls.
More stability: This comprehensive process keeps cash flow smooth and efficient.
Transparency: Automation and centralized data help accounts payable teams retain total visibility through every stage, from requisition to final payment.
Higher accountability: This standard of budgetary control ensures every purchase meets operational standards, adheres to corporate compliance, and stays within budget.
Tighter supply chain: Improved efficiency benefits both the company and its suppliers. P2P makes it easier for suppliers to meet delivery deadlines. This reduces their costs and allows you to renegotiate better prices and terms.
Better liquidity: Your working capital is less strained and more available for other immediate needs. It can also be allocated to future budget plans, including settling promissory notes.
By knowing the differences between notes payable and accounts payable—and learning to leverage each correctly— you can improve your cash flow and grow more effectively. Pair this with a robust P2P platform, and you’ll be set to optimize your finance function and further accelerate success. To learn more about leveraging financing and putting procure-to-pay to work in your procurement practice, watch our on-demand Finance and Automation webinar.
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