An AP Pro’s Guide to Convincing Suppliers to Adopt Electronic Payments
Businesses cite lots of reasons for continuing to pay suppliers with paper checks …
… Inadequate resources to manage the transition
… Lack of senior management support or mandate
… Competing priorities
… Fear of change
But one of the biggest things keeping businesses from migrating to electronic payments is the misperception that their suppliers won’t accept them. The reality is that most suppliers want to receive more payments electronically. Electronic payments provide suppliers three big benefits
1. Lower cost of doing business: Electronic payments result in less paperwork and fewer posting errors for suppliers. Electronic payments also are deposited directly into a supplier’s bank account, eliminating the need to process checks, make trips to a bank to deposit checks, or pay for a pricey bank lockbox service. And the visibility and predictability of electronic payments reduces the time that suppliers spend chasing outstanding payments. The cost savings from electronic payments often dwarf the merchant service fee paid by suppliers.
2. Improved cash flow: Electronic payments reduce a supplier’s receivable cycle. For starters, electronic payments arrive faster than paper checks and there is no chance that a virtual card or ACH transaction will become lost. Suppliers can track the status of an electronic payment, and they can always count on it arriving on time. Many buyers will even pay a supplier early in return for a discount on the invoice-due amount. And some buyers will tier their payment terms to incentivize suppliers to accept electronic payments; the payment methods that are most desirable to the buyer will offer the shortest payment terms. Additionally, virtual card and ACH transactions are directly deposited into the supplier’s bank account, eliminating the possibility of lost float if busy staff cannot make a trip to the bank to deposit payments. And the rich remittance detail that accompanies electronic payments streamlines the matching of payments and open invoices as well as cash application. Electronic payments also are reconciled in real-time, improving the accuracy of cash flow reporting and forecasting.
3. Higher sales: Accepting virtual card payments can raise a supplier’s standing with its customers, opening the door to more opportunities to capture more orders.
Each of these benefits is tantalizing to suppliers.
How to convince suppliers to accept electronic payments
As compelling as these benefits are, businesses still need to convince suppliers to accept electronic payments. Here is a step-by-step guide to ensuring strong supplier adoption of electronic payments:
Step 1: Analyze your spend file
The first step towards strong supplier adoption of electronic payments is to analyze your spend file to identify suppliers and purchases that are good candidates for electronic payments. Consider key criteria such as payment value, the number of payments per supplier, the percentage of corporate spending represented by the supplier, the contractual relationship your business has with the supplier, the strategic importance of the supplier, and the supplier’s receptivity to electronic payments (e.g., have they asked to be paid electronically?). An electronic payment solutions provider can review your spend file to identify suppliers that already accept virtual card payments from other businesses.
Step 2: Segment your suppliers
The insights provided by a spend analysis will enable you to segment your suppliers and develop a proposed approach to electronic payments for each one. Work with stakeholders such as treasury and procurement to create a plan for strategic and non-strategic suppliers as well as suppliers of large-ticket items, contracted suppliers, suppliers of commodities, and one-time suppliers. Don’t fall into the trap of thinking that only strategic suppliers are candidates for electronic payments; many businesses make most of their payments to suppliers who don’t represent most of their spend.
Step 3: Engage your suppliers
Engaging suppliers starts with ensuring that you have current contact information for each one. Be sure to make any updates to your vendor master database. Once you have the contact information in-hand, you can begin engaging suppliers based on the plan you developed for their segment. The engagement plan for each segment might include telephone calls, e-mails or mailed letters and should detail when each supplier segment will be engaged. Be sure each printed or e-mailed communication to suppliers reflects your corporate branding, includes the telephone number and e-mail address of a person the supplier can contact for more information, is customized with a message for the supplier’s segment and clearly articulates the benefits that suppliers will achieve by accepting electronic payments. Telephone calls to suppliers should be carefully scripted with suggestions for tackling objections. It is also a good idea to provide stakeholders with a list of Frequently Asked Questions (FAQs). While suppliers should be given opportunities to immediately opt into your electronic payments program, don’t be surprised if it takes multiple attempts to get a response from suppliers.
Step 4: Support your supplier
No one likes to feel abandoned. That’s why it’s critical to develop a plan for supporting suppliers after they enroll in your electronic payment program. Your plan should address the administrative process for onboarding suppliers, initial and ongoing support, and any bank-related issues.
Step 5: Don’t stop onboarding
It’s tempting to shut down your onboarding efforts once you’ve reached your goals. But a better approach is to analyze your spend file on an ongoing basis to identify opportunities to onboard suppliers. Over time, your supplier base will change, supplier contracts will come up for renewal, decision-makers who were resistant to electronic payments will leave, negative perceptions of electronic payments will soften, and your business will gain more leverage with some suppliers. All these scenarios are a chance for you to engage with suppliers to drive additional adoption.
Following these five steps will ensure that you achieve optimum supplier adoption of your electronic payment program. Do these steps daunting? Don’t worry, electronic payment solutions providers can help you at each step of the way in driving supplier adoption, relieving you of the burden.
Ready to migrate your suppliers to electronic payments? Schedule a demo.