While the convergence of accounts payable and accounts receivable can be implemented across people and in particular job functions and reporting lines, it also takes place across processes.
At first glance, this might seem counterintuitive. After all, making payments to vendors and collecting on invoices are processes which are not part of the same transaction.
They also require very different skillsets. Making payments involves labor-intensive tasks such as matching purchase orders and invoices, printing and mailing checks, or sending payment files to an outsourced payments processing provider. Credit and collections, meanwhile, involves chasing overdue payments, resolving disputes and managing credit risk and credit lines.
As a result of these differences, accounts payable (AP) and accounts receivable (AR) were rarely spoken about in the same breath until recently. However, with AP and AR teams now approaching their core activities in a more sophisticated way, this is beginning to change.
Where payables are concerned, the focus is no longer on simply receiving invoices from a vendor and paying them. The most sophisticated companies are now offering their vendors a set of payment options when they receive an invoice. These options might include paying a vendor in 45 days by check – or in less time via ACH or virtual cards. The company may offer to pay a vendor in 30 days at a discount of 50 – 100 basis points. Or the company might offer to pay a vendor within five days using a virtual card, with the vendor paying the relevant interchange fees. Some companies are providing vendors with dynamic discounting options which can improve both parties’ working capital positions.
The same trends are affecting accounts receivable. As well as invoicing their customers quickly and efficiently, and resolving any disputes in a timely manner, companies are also exploring the use of dynamic discounting techniques in order to get paid sooner.
While AP and AR processes are still clearly different, both functions are focusing on the common goals of improving straight through processing rates, migrating from paper to electronic transactions and optimizing working capital. As a result, there’s a growing realization that there may be opportunities to combine processes in both of these areas.
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