AP and Cash Flow in EU

AP and Cash Flow in EU
Paying invoices late is a worldwide issue. Many companies attempt to apply late fees but are not successful in collecting them. Obviously this is important since it directly impacts cash management including corporate borrowing. Apparently smaller vendors have often become a lending institution for larger companies resulting in government action in the European Union.
In the EU, they are working to secure a level playing field and clear-cut rules for all players, to the benefit of Europe's many small and medium-sized companies. This deal means that SMEs will no longer be forced to serve as banks for public enterprises or big companies.
They are working on legislation that will in most cases require payment within 30 days. If not paid in 30 days there will be an 8% surcharge along with a fixed fee of 40 Euros. While this applies to the EU it is fair warning for the rest of the world.
In the UK, many corporations have already accepted the challenge by the government to pay within 10 days yet late payment continues.
It is my opinion that to assure timely payments, corporations will have to optimize their Accounts Payable solutions including document archive, OCR and most certainly business rule driven automated processing. Other options while appealing on the surface typically add more than late fees. These options include quick pay without any analysis or at the most spot analysis. For those corporations utilizing SAP as their system of record, the solution is immediately available. SAP provides Document Archiving, OCR and Invoice Management for full Accounts Payable optimization. These solutions when implemented should allow not only for improved accuracy, lower staffing requirements, elimination of duplicate payments and compliance control, they will also ensure payment within the 30 day window…or better yet 10 days as in the UK.

See SAP EcoHub for more information on SAP Invoice Management.

Accounts Payable and Economic Stimulus

It is difficult to go a day without seeing or hearing something about stimulating the economy. The basic tenet of the effort is to get more money flowing in the economy.

Most often this is thought of related to spending, i.e. “buying” or “procuring.” Too often, we do not consider the second part of the procure-to-pay (P2P) equation and that is “paying”. It is well documented that in many situations it is advantageous for a company to extend the Days Payable Outstanding (DPO) in order to increase working capital. While in the short run that is completely logical, one must consider the full economic supply chain.

Late payments to one supplier compounds into late payments to downstream suppliers. In order to compensate, the suppliers must raise prices, eliminate discounts or go out of business in many cases. This narrowing of the available selection of suppliers inevitably causes a trend toward higher prices from the remaining suppliers… hence the law of supply and demand.

Fiscal responsibility to the corporate stakeholders goes beyond the current economic crisis. Corporations and Government that realize the importance of their Accounts Payable (AP) departments have invested in the necessary tools to optimize and automate the payment process.

One example where commitment to AP process optimization has been realized can be found in the England. Government officials pledged to pay suppliers within 10 days. While the typical AP issues have prevented this from becoming the norm, it does demonstrate the governments understanding of how AP impacts the economy.

SAP provides the granularity of information required to fully manage complete P2P transactions. Implementation of SAP Invoice Management brings the power of the individual transactions into a tightly controlled process while providing a comprehensive view into the process from invoice receipt whether electronic or paper (via optical character recognition (OCR)) through to exception resolution.

As companies and government order goods and services, it is essential that payment for these goods and services be managed as a process to keep the stimulus flowing, rather than coming to a stop with the first purchase. Financial management must provide immediate and full visibility and control of the AP process to fully participate in the stimulus so that it ultimately provides the benefit we expect.

So…is AP an undeniable significant component of economic stimulus initiatives around the world? I for one say YES!

See SAP EcoHub for More on AP Optimization