Paying Suppliers
There are three types of suppliers: high volume trading partners, regular suppliers and one-off/occasional suppliers - see figure. Each type requiring different payment solution.
Types of Supplier and Payments
Source: J&W Associates Copyright © 2011
Paying High Volume Partners
Some large companies have the majority of their trade with a few trading partners, often as much as 60-70%, and the rest with their regular suppliers and the many occasional, irregular suppliers. For their major long term trading partners, companies have, wherever possible, developed fully integrated systems and processes, such as the integration of their SAP accounting systems, and Electronic Data Exchange between the companies. This integration includes covering the placing of the order, automated payment of the invoice - typically via an ACH - and automated reconciliation. Often netting is used to minimise the number of payments.
Paying Regular Suppliers
The processing costs for each paper invoice received is around €18 for the supplier This cost can be dramatically reduced if e-invoicing is used to €7 as the figures below show.
Recipient Invoice Costs per Transaction
So, whenever possible, use e-invoicing services and platforms and then minimise payment costs by paying in batches via the local ACH.
Paying Occasional Suppliers/One-Off Payments
Most companies have many suppliers where they purchase items or services occasionally, some insist that, even for even single payments, they are e-invoiced and pay through their normal systems.
Other approaches to paying for occasional suppliers or one-off payments is to treat them as purchases at point of sale and use:
- payment cards, such as corporate T&E cards or purchase cards
- pay by cheque
- cash, but only as a last resort.
Procure-to-Pay Services
Procure-to-pay portal, sometimes called spend management portals, offer an important alternative approach in paying suppliers. These portals are operated by the buyer, they only allow employees to purchase goods and services from approved suppliers and have integrated systems for paying suppliers - mostly ACH or payment cards. (See Procure-to-Pay Cycle).