Late payments can be a huge headache for businesses of all sizes. Not only do they cost you money in the form of interest and fees, but they can also hurt your reputation with suppliers and other business partners. The good news is that there are several ways your business can reduce overdue payments in your accounts payable department, and it starts with AP automation. Let’s take a closer look.
Why Overdue Payments Happen
There are a variety of reasons why overdue payments happen. Below are some common reasons they occur.
Human Error
In some cases, overdue payments occur simply as a matter of human error. Perhaps an invoice was misplaced and not entered into the system, or maybe the due date was entered incorrectly. Paper payments in the form of checks can also get lost in the mail or sent to the wrong location if addresses aren’t updated in a timely manner.
Inefficient Processes
In other cases, late payments are the result of slow or inefficient processes. For example, if your business requires multiple approvals for each invoice, it’s likely that some payments will be delayed while invoices are being passed around from person to person.
Fast Growth
Sometimes late payments become more common when a business undergoes fast growth, leaving the AP department with a significant increase in invoice volume without the headcount, hours, or technology to adequately support it.
What are the Repercussions of Late Payments?
There are a number of negative consequences associated with late payments. First and foremost, they can damage your relationships with suppliers. In the 2022 State of AP report, 70.8% of AP teams indicated that their supplier relationships have grown more important to their business over the last year. Moreover, 84.4% of vendors indicated that speed of payment is a top priority.
If you consistently pay invoices late, your suppliers may be less likely to give you favorable terms in the future or even extend credit at all. This can ultimately lead to higher costs for your business. Additionally, since businesses across the globe are experiencing supply chain delays, it’s important to foster vendor relationships so they prioritize your business in terms of shipments and orders.
Late payments can also result in late fees and interest charges. In some cases, these fees may be assessed by the supplier; in others, they may be charged by your credit card company or bank. Either way, they represent an additional cost for your business.
Finally, late payments can damage your business’s credit score and reputation. This can make it more difficult and expensive to obtain financing in the future. If other businesses see that you’re consistently paying invoices late, they may be less likely to want to do business with you. This can ultimately limit your ability to grow your business and find new suppliers.
What Steps Can Businesses Take to Reduce Late Payments?
There are a number of steps businesses can take to reduce late payments. These include tracking reports and data, streamlining processes, and using the right tools and automated platforms.
Leverage the Aged Payables Report
One of the first steps businesses can take to reduce overdue payments is to make use of the aged payables report (also known as the AP aging report). This report lists all invoices that are past due, along with how many days they’re overdue. This information is helpful in a number of ways.
First, it helps teams identify any patterns or trends in their late payments. Perhaps there are certain types of invoices that are consistently being paid late. Or, you may notice that payments are late more often during certain times of the year. This information can be used to make changes to your processes or policies to reduce overdue payments. Additionally the accounts payable report is a great tool to leverage when determining which payments must be made first. Your team can easily pull invoices by due date to ensure they each get processed on time.
Simplify Invoice Approvals
Improving the invoice approval processes can drastically reduce late payments. This is often best done by adopting the right AP platform and making use of AP automation as much as possible. For example, you could set up rules to automatically approve certain types of invoices.
With an AP Automation platform, like MineralTree, department heads and decision makers can easily approve invoices directly from their email with automated, scheduled reminders. This also helps AP teams save on internal resources, as AP automation reduces the time needed for follow-up reminders. Approvers also benefit, since they can easily check and approve invoices, no matter where they are, as long as they have access to their email.
Centralize Invoice Collection
Another way to reduce late payments is to have a centralized space for collecting invoices.
To ensure that invoices reach the AP team, many companies create a dedicated email for invoices. Teams can also leverage sophisticated invoice capture technology to accurately capture line item data. Having a designated place for invoices will help to ensure that they’re not misplaced or forgotten.
This is especially important if your business has multiple people who are responsible for entering invoices into the system. For businesses with multiple locations or hybrid employees, a streamlined system ensures invoice payments are made on time. Having a centralized space also helps ensure that all invoices are entered in a timely manner.
Set Payment Dates in an AP Tool
You can also reduce late payments by setting payment dates in an accounts payable (AP) software tool or platform. This tool can be used to track invoices and make sure they’re paid on time. You can also use the tool to set up reminders for when invoices are due. By automating this process, your team reduces the risk of paying suppliers late for the services provided.
Use Electronic Payment Methods
Electronic payments (ePayments) can be made via virtual cards and ACH. Electronic payments are much faster than traditional checks and do not run the risk of getting lost in the mail or sent to the wrong address, helping ensure payment is not overdue. In fact, 85% of suppliers list more timely payments from customers as one of the main benefits of ePayments.
Selecting the right payment method for each vendor can give you more control over timing payments. It also provides more flexibility, allowing you to take better advantage of early payment discounts and strategize your payments most effectively.
Streamline Every Step of the Payment Process
Finally, businesses can further reduce late payments by streamlining every step of the payment process. This includes everything from how invoices are entered into the system to how payments are processed.
Automating as many of your accounts payable processes as possible will help you to reduce errors, save time, and improve efficiency. In fact, 46.1% of today’s AP teams work in a hybrid model while 22.5% work totally remotely, which means today’s teams must have the right digital tools to facilitate and streamline the AP workflow without physically handing papers back and forth or cutting paper checks.
There are a number of different AP automation solutions on the market so it’s important to select the one that’s right for your business. Once you’ve selected a solution, you can start automating your AP processes to more effectively manage your accounts payable department.
Simple Mills Leverages AP Automation to Process More Invoices without More Headcount
Overdue payments can have a number of negative consequences for businesses which is why it’s so important to take steps to reduce them. Leading provider of better-for-you snacks, Simple Mills, recently adopted MineralTree to help its end-to-end AP process. As a result, Simple Mills’ AP team can now process significantly more invoices monthly while also strategizing how to optimize payments.
Simple Mills’ coordinated proactive payment strategy helped minimize and even eliminate overdue payments. According to Simple Mills Controller Maddy McGannon, “MineralTree has allowed us to manage a nearly 50% increase in invoice volume without adding AP headcount—all while ensuring our suppliers are paid on time.”
Final Thoughts
MineralTree can help your AP department streamline its processes and reduce overdue payments as well. MineralTree’s TotalAP digitizes and automates the entire invoice-to-pay process to make paying your suppliers easy, impactful, and profitable. Features include automated invoice capture, approval, and payment authorization as well as the ability to optimize payments and payment mix and perform analytics. Ready to learn what your accounts payable process looks like with automation?
Request a free demo today.
