How procurement automation can optimize accounts receivable


Learn how procurement automation can optimize working capital, specifically accounts receivable.

Two accountants working on accounts receivable
Written by
Charlie Rhomberg
Published on
May 4, 2023
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When most company leaders think about procurement automation, things like better pricing, shorter procurement cycles, and insights into their SaaS stack come to mind. These advantages are worth highlighting. But an underrated benefit of procurement automation is helping to optimize working capital, and in particular, accounts receivable.

By handling various tasks that are typically done manually, procurement automation can help companies make their accounts receivable more efficient, accurate, and scalable.


Faster and more accurate invoice processing

Procurement automation can play a significant role in speeding up invoice processing time, leading to reduced payment delays and improved accounts receivable management. With automated invoice processing, businesses eliminate the manual tasks associated with reviewing and approving invoices, which can be time-consuming and prone to errors. By streamlining the invoice approval process, procurement automation can help to ensure that invoices are processed more quickly and efficiently.

In finance, speed is nothing without accuracy. Procurement automation doesn’t just make invoice processing faster—it also reduces errors. By automating the generation and submission of invoices, businesses can minimize the risk of discrepancies that can lead to disputes and delayed payments. Automated invoicing systems can help to ensure that invoices are generated promptly and accurately, with all the necessary information included. This can lead to faster invoice approvals and more timely payments from customers, ultimately improving accounts receivable management.

Furthermore, procurement automation systems often include built-in validation and error-checking features that can help to identify potential issues or discrepancies in invoices before they’re submitted for approval. This proactive approach can help to prevent costly delays, since issues can be identified and resolved more quickly. As a result, businesses can maintain a healthier cash flow.

Procurement automation can also help to improve communication and collaboration between various departments involved in the invoicing process, such as procurement, accounts payable, and accounts receivable teams. By centralizing invoice data and automating key processes, these systems can help to break down silos between departments and facilitate more effective information sharing. This enhanced collaboration can lead to more efficient invoice processing, as teams can work together to identify and address potential issues, negotiate more favorable payment terms with suppliers, and ensure that invoices are processed and paid on time.


Improved cash flow forecasting

Besides streamlining invoice processing, procurement automation can also help companies better predict future cash flow. Accurate cash flow forecasting is crucial, as it allows businesses to anticipate potential liquidity issues and take appropriate action to address them. Procurement automation can help to improve cash flow forecasting by providing businesses with real-time data on their procurement processes, including information on supplier payment terms, order volumes, and payment history. This can enable businesses to create more accurate and timely cash flow forecasts, which can in turn help to minimize the risk of late or non-payment and ensure that accounts receivable are managed effectively.

By leveraging procurement automation, companies can gain better visibility into their entire procurement lifecycle, from the initial request for quotation (RFQ) to the final payment. This comprehensive view of procurement data enables finance teams to more accurately project cash inflows and outflows, helping them to identify potential bottlenecks, prioritize payments, and make better decisions about cash management strategies.

In addition to providing real-time data, procurement automation systems can also integrate with a company's enterprise resource planning (ERP) and financial management systems. This seamless integration allows for a more cohesive approach to cash flow forecasting, as it enables finance teams to access and analyze data from multiple sources, including accounts payable, accounts receivable, inventory, and sales. Moreover, procurement automation can help businesses to identify trends and patterns in their accounts receivable data, such as seasonality, customer payment behavior, and changes in market conditions.

Better supplier management and risk mitigation

The benefits of procurement automation aren’t just internal—it can also help manage suppliers effectively, which is essential for optimizing accounts receivable management. Doing so enables businesses to build strong supplier relationships, negotiate more favorable payment terms, and ensure that they’re working with suppliers that are reliable and financially stable. In doing so, businesses can minimize the risk of supply chain disruptions and late payments.

Procurement automation can also provide businesses with the tools and information they need to effectively evaluate and monitor their suppliers. With real-time data and analytics, businesses can gain a better understanding of their suppliers' performance, financial health, and payment history, allowing them to make more informed decisions about which suppliers to work with and how to manage their accounts receivable.

Enhanced reporting and analytics capabilities

One of the key benefits of procurement automation, as exemplified by Vendr's platform, is the enhanced reporting and analytics capabilities it provides. With access to real-time data and insights, businesses can better track and monitor their accounts receivable, identify trends and potential issues, and make data-driven decisions to optimize their processes. This can lead to improved accounts receivable management, as businesses are better equipped to anticipate and address potential challenges and optimize their cash flow.

Procurement automation platforms streamline procurement processes by centralizing and automating key tasks, such as contract negotiations, vendor onboarding, and renewals. As a result, businesses can gain more comprehensive visibility into their procurement activities and accounts receivable performance. With robust reporting and analytics tools, companies can easily generate customized reports and visualizations, helping them to gain a deeper understanding of their accounts receivable metrics and identify areas for improvement.

For instance, Vendr's platform can help businesses to track key performance indicators (KPIs) related to accounts receivable, such as days sales outstanding (DSO), collection effectiveness index (CEI), and aging reports. By monitoring these KPIs, companies can identify patterns and trends in their accounts receivable data, allowing them to proactively address potential issues and improve their cash flow management.

Also, Vendr's platform allows businesses to benchmark their accounts receivable performance against industry best practices and competitors. This can help companies to identify areas where they may be underperforming and develop targeted strategies for improvement. For example, if a company's DSO is significantly higher than the industry average, they may need to adjust their credit policies, payment terms, or collection processes to better align with industry standards and reduce the time it takes to collect payments.

Lower compliance risk

Procurement automation can help businesses to improve compliance with industry regulations and reduce the risk of non-compliance, which can have a significant impact on accounts receivable management. By automating the procurement process and ensuring that all transactions are accurately recorded and documented, businesses can minimize the risk of errors, discrepancies, and potential disputes, which can lead to delayed payments or non-payment. This can help to streamline accounts receivable management and ensure that businesses are better positioned to meet their financial obligations.

Greater scalability and adaptability

As businesses grow and evolve, their procurement processes and accounts receivable management needs will also change. Procurement automation can provide the scalability and adaptability required to accommodate these changes, allowing businesses to quickly and easily adjust their processes and systems to meet their changing needs. This can help to ensure that accounts receivable management remains efficient and effective, even as the business environment becomes more complex and demanding.

Better customer relationships

Finally, procurement automation can help to improve customer relationships by ensuring that businesses are able to fulfill their orders and meet their customers' expectations in terms of product quality, pricing, and delivery times. By providing a more efficient and reliable procurement process, businesses can improve their overall customer experience and foster greater trust and loyalty among their customer base. This can lead to more prompt payments from customers, as they are more likely to pay their invoices on time when they are satisfied with the products and services they receive. In turn, this can help to streamline accounts receivable management and contribute to a company's long-term success.

Procurement automation offers numerous benefits for streamlining accounts receivable management and improving a company's overall financial health. By automating various aspects of the procurement process, businesses can enhance invoice accuracy, speed up invoice processing, improve supplier management, and gain greater visibility and control over their procurement processes.

Embracing procurement automation and the advantages it offers is a secret weapon for businesses looking to take their working capital management to the next level.


Charlie Rhomberg
Charlie Rhomberg is a freelance writer focused on B2B SaaS.

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