The Foundation of Working Capital Management
Talk to almost any AP or shared services organization and a consistent set of challenges and priorities quickly emerges: better discount capture, perhaps through dynamic discounting, more standardized payment terms, greater digital interaction with suppliers, and better cash flow management.
The trouble is, many of these priorities and challenges were exactly the same last year. And the year before. Despite ambitions to tackle these improvements “tomorrow”, “tomorrow” never comes.
These goals have an undeniable appeal. As analyst firm PayStream Advisors points out in respect of dynamic discounting, a standard discount of 2% for payment within 10 days translates into an annual percentage rate of 36%, with typical invoice savings ranging from $1 million to $5 million per billion dollars in annual spend discounted1.
The argument for standardized payment terms is just as persuasive. Take a recent APEX Analytix client, a Fortune 50 company for which APEX benchmarked its technology spend against their extensive database of spend and payment analytics data. Its average payment term was 15.6 days, against the industry standard of 33.6 days revealed by their benchmarking data. Simply moving to industry norms represented an 18-day improvement in days payable outstanding, and a $22.5m working capital impact.
So, what’s preventing the typical AP or shared services organization from achieving such gains? Why are these challenges constantly unfulfilled?
The problem isn’t willpower. Instead, it’s often the absence of clean vendor master data, particularly when coupled to a lack of supplier portal capabilities. Put another way, organizations lack basic - but important - data about their suppliers, as well as the ability to digitally leverage that data.
The typical organization has accurate email addresses for fewer than 5% of its vendors and accurate phone numbers for fewer than 40%. 35% of organizations acknowledge that the accuracy of their vendor master data is a ‘challenge’. Even more - 38% - acknowledge a similar challenge with its completeness, and less than 10% monitor their data continuously.
How, then, should businesses go about building the foundation of clean vendor master data upon which to drive better engagement with suppliers, and the smarter working capital management that it enables?
Conceptually, the process is simple. APEX Analytix use the metaphor of securing a house. First, get your house in order. Second, guard your front door. And finally, guard your back door.
In other words, compare your vendor master data with authoritative sources of correct data to identify gaps and errors, correcting and supplementing your data as errors and omissions are found. Then, ensure that every new vendor record is complete and accurate as it is added. And finally, continuously monitor vendor master data for regulatory risks, fraud, and vendor changes. The trouble is, historically this has been slow and resource-intensive work.
Smart technology offers a better way. APEX Analytix’s SmartVM, for example, cleanses and enriches records with information from over 650 government regulatory and other third-party databases, including 240 individual country address databases as well as taxation identification and banking information databases. APEX's smart technology further enhances the vendor master with data routinely captured from 20 million suppliers as part of normal business preventing and recovering overpayments and fraud, and on boarding suppliers.
To see the power of such an approach, take a recent client case study. Of 35,192 vendor records, 862 were found to be duplicates, 1,227 were inactive, 682 had invalid tax IDs or VAT registration numbers, and 5,760 had invalid IBAN or SWIFT bank details. APEX also corrected 15,000 street addresses, added 2,062 telephone numbers and 10,493 email addresses, and applied over 6,000 SIC and NAICS industry classification codes.
The result?
Clean vendor master data, to be sure - and in fact, a level of cleanliness that for this client organization was unprecedented. But also something more, and something that is much more powerful: the building blocks of digital engagement. Now they have the correct data for their suppliers, organizations can implement these desired changes: updates in payment terms, invite suppliers onto their portals, conduct spend analytics, segment suppliers and harness opportunities for dynamic discounting and more.
It can’t be stressed often enough. The foundation of good working capital management is clean and accurate vendor master data. And without clean and accurate vendor master data, progress towards better working capital management will be slow.
About the author
Danny Thompson is the SVP Market & Product Strategy at APEX Analytix and is responsible for defining and leading APEX Analytix’s software product strategy and roadmap. As the world’s leading provider of supplier portal software and AP recovery audit services, APEX Analytix has been at the forefront of AP technology for over 30 years, working to safeguard over $4.6 trillion. Their SmartVM database of 20 million+ proprietary, scored supplier records was revolutionary, was revolutionary, and APEX Archimedes cognitive technology continues to move APEX Analytix towards the future.
To find out how your organization’s priorities and working capital initiatives compare to those of your peers, take APEX Analytix’s short benchmarking survey and get exclusive access to the 2018 Financial Leaders’ Benchmarking Report.
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