Obama calls for early payment to suppliers – but it takes two to tango

Obama

I read with great interest the White House press release announcing the creation of the SupplierPay initiative.

Buoyed by the success of the Government’s QuickPay program that was launched in 2011, which sought to expedite payments to small business contractors, the goal of this new initiative is also focused on “strengthening small business by increasing their working capital.”  This time, the initiative calls for extending the early pay process to the private sector.

As covered in our May 15th post Recent automotive industry study shows that P2P efficiency and supplier performance go hand-in-hand, the benefits of ensuring timely payments is reflected in the strength and viability of an organization’s supply chain.  Or as the study put it, organizations that “maintain positive relationships with suppliers tend to offer the best products at affordable prices.”  Conversely, the” impact that a slow payment regimen has on suppliers from a liquidity standpoint is significant.”

The SupplierPay program is obviously intended to address this latter point.

The key to success however, is not in the intent – which is beyond reproach – but in the capacity of the buyer’s payment process.  Specifically, how can the buying organization remove the traditional bottlenecks that are at the heart of the payment delay problem?

In this context, new technologies and non-bank supply chain financing options make it possible for smarter buyer organizations to step up to the plate with innovative solutions that maintain supply chain liquidity and healthy supplier relationships.

What we are talking about specifically here, is the introduction of a Compliance Firewall that stops bad invoices from entering the AP process to begin with.

Why is this such a critical factor?

According to an Institute of Financial Operations article, days sales outstanding (DSO) are at “record levels” averaging 42 days in the U.S.  The cause of slow payments is directly related to defective invoices sent by trade vendors.  In fact, defective invoices (invoices that don’t reconcile) account for “nearly two-thirds (63 percent) of past due payments,” and on average, take “two to three times longer to be paid than clean invoices.”

When empowering suppliers with the ability to make certain that their invoices are compliant, buyers can implement automated approvals that takes just minutes and result in quicker payments.

This level of transparency is essential for suppliers who, knowing  within seconds if there is an issue with an invoice, can take immediate action.

In the end, it is this ability to bridge the gap between good intentions and real-time (or near real-time) invoice processing and reconciliation capabilities that will ultimately make the SupplierPay program successful.

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