Gain cash control through better P2P processes

A major bottleneck for many of Australia’s top treasury departments is the management of supplier payments.

Although a well-known problem, especially with low-value payments, many companies continue to struggle with collection, validation, storage and maintenance of sensitive supplier details like bank accounts,  and payment processing and reconciliation for both the payer and the payee.

The trickle-down effect from the resulting inefficiency can be dramatic; it leads to wasted working capital and lack of cash flow visibility.

It’s the same old problem – poor invoice management leads to weakened cash flow forecasting, which leads to conservative management of surplus funds (usually on low-yielding transaction accounts), or funding payments with expensive short-term cash-flow facilities.

Introducing purchase cards is considered a sensible solution to this procurement conundrum, but many existing services fail to offer the safeguards finance chiefs require.

For the vast majority of card-based products, controls can only be put in place post transaction; by that stage, the money has been spent and the corporate is on the hook. To improve control, some organisations have gone as far as issuing private liability or prepaid cards which are even more challenging for treasury trying to manage cash flow.

And the numbers prove this point. Recent Visa and Euromonitor surveys highlight that while consumers are happy to use cards for more than 35% of their payments, corporate and purchasing cards are used for less than 3% of business payments*.

Based on client discussions held by NAB [National Australia Bank], many treasurers tolerate their existing procure-to-pay process simply because nothing better is available to them. Using old-school purchase orders, they acknowledge their set up is inefficient, particularly when it comes to low-value transactions.  

The pain can be distilled into three main areas

1. Process inefficiency: P2P process, supplier management, and reconciliation.
2. Working capital mismanagement and lack of visibility
3. Lack of pre-payment control with corporate and purchasing cards

NAB, in partnership with Visa and Fraedom, an expense management platform provider, is launching a new electronic payables solution for Australian clients that goes some distance to solve these pain points.

The solution, called ePayables, essentially integrates customers' existing P2P and expense management processes and allows them to use their purchasing card off balance sheet credit lines to cover selected payments.

Here’s a brief explanation of how it can benefit your business:

Card control

To provide pre-payment control, the corporate card can be issued with $0 credit limit. An employee must create a requisition to pay for the specific expenses and require approval by a manager. On approval, the credit card limit is increased to the value of the spend and no more. The employee completes the purchase and is then able to reconcile the expenses.

Not only does this method reduce the need for cash advances and petty cash, but equally importantly, all transactions are now digitally captured within the purchasing card programme (making reporting easier) and, if needed, the interest free payment terms that can come with the facility will aid cash flow.

Automated invoice payments

The ePayables solution can also help improve payment terms between customers and suppliers and enhance cash flow visibility.  For example, if a customer submits a batch of approved supplier invoices to the system, it will subsequently advise suppliers of approval and provide single-use virtual account details for payment.

Alternatively, suppliers can hold lodged accounts (supplier card) provided by their customers for payments, the credit limit on this card is initially $0 and will be increased when the customer informs the supplier to process approved invoices. Suppliers will receive the cleared funds from their acquiring banks and the customer receives a monthly statement with interest free payment terms from NAB.

Procure-to-Pay

One of the most time consuming aspects of accounts payables management is the requisition process for purchases. Suppliers have to be set up on the corporate’s financial system to enable payments against invoices – this absorbs a lot time which could be better employed elsewhere.

In the same vein, the new ePayables solution allows the AP and procurement teams to streamline a host of processes. For example, once a manager approves an online requisition a single-use virtual account is created to make the specific purchase. The supplier receives the payment, submits a tax invoice, which the buyer attaches to the requisition – reconciliation is automatic, and no AP involvement is required. Again, the customer has the benefit of a lengthy interest free payment term through the use of a virtual account and the purchasing card facility.

Before you start worrying about how much time and effort this would take to adopt, it is important to note that some of the infrastructure is in place already. 

“Many corporates have a line of credit provided by their bank for corporate and purchasing cards. However, typically only 10% to 20% of this credit line is utilised meaning there is already an approved facility that is under-used and available for this type of solution,” explained Anthony Jones, head of business solutions for Australia and New Zealand, at Visa.

NAB advises that the ePayables solution is suitable for companies who process significant numbers of supplier payments, and was developed to address the needs of customers with more than $80 million in turnover.

*Source: Visa Inc. CCE Study 2014 and Euromonitor payments research, 2015