CHAPTER 2: UNDERSTANDING YOUR B2B CUSTOMER’S PROCURE TO PAY PROCESS (P2P)
Often, AR believes that AP thinks its job is to pay their invoices late, but that is not typically the reality. AP understands and believes it is responsible for paying suppliers on time. But often they are fighting an uphill battle with a very broken, chaotic process that they have no control over, resulting in late payment. A complete invoice, addressed to AP, can help.
2.6 Sending Statements of Past Due Invoices
This may surprise many in AR, but most statements sent to AP go directly into the “round file,” i.e., the trash. Too often, a statement lists invoices that are past due but does not list open credits or cash on account. Some AR departments are sending statements listing invoices that are not due yet. AP has learned to disregard most statements. They often find that an invoice on the statement has just been paid and the payment and statement crossed in the mail. AP is also inundated with processing invoices and resolving issues, and it takes too much work to research an incomplete statement that does not provide what AP needs to research open items on their account. Statements also usually do not contain contact information or copies of the invoice. If you really want AP to react to a statement, it may be wise to restructure the statement and include a copy of the past due invoices.
2.7 AP and Procure-to-Pay Best Practices
In an effort to pay invoices accurately and on time, many AP departments are implementing best practices. How can you take advantage of these best practices?
Purchasing Card: To reduce the high volume of invoices processed by AP—especially low-value invoices—companies have implemented the purchasing card. Approximately 80 percent of all non-inventory invoices are under $1,000, yet they account for only 20 percent of the money spent. Purchases made on a card can remove a high volume of low-dollar invoices from AP. Does your policy allow purchases to be made via credit card? If it doesn’t, it may be time to rethink accepting the credit card. Many AR departments have been told by controllers not to accept the purchasing card because it requires points to be paid. However, there are many benefits to accepting credit card payments: You are receiving payment in the bank within 1-3 days and the customer’s merchant bank—rather than your company— extends the credit. This may allow you to sell to a customer whose credit score is not high enough to open a line of credit. Many customers may want you to accept credit card payments for an invoice because it is efficient and reduces payment-processing costs. If you offer early pay discount terms of 2%10n30, why not accept the credit card? It can be a win/win. AR receives the payment in days and the customer has 15 days from a monthly statement to pay for those charges.
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THE ACCOUNTS RECEIVABLE SPECIALIST CERTIFICATION PROGRAM E-TEXTBOOK
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