How to Eliminate Vendor Management Challenges with Automation

In today’s interconnected business landscape, effective vendor management is essential for maintaining smooth operations and driving growth. However, managing numerous vendors simultaneously can be a daunting task for the accounts payable (AP) team, especially when it comes to onboarding, processing payments, and maintaining effective communication. AP teams at investment management firms typically manage approvals of invoices via email and track receivables and payables manually in spreadsheets, which hinders efficiency and increases risk. In this blog, we discuss some of these challenges in detail and then brainstorm how these challenges can be resolved using thoughtful automation.

1. Complex Vendor Onboarding Process

Onboarding new vendors could be a time-consuming process. The AP team has to collect and verify various documents, including banking information, tax forms, and many others. Vendors must also provide information and additional documents before invoices can be paid. In addition, managers are required to retain valid copies of the tax and legal documents of vendors for internal compliance and record retention. Gathering and tracking this essential information consumes a great deal of time and effort.

2. Invoice Discrepancies

Due to the prevalent use of legacy software systems and manual methodologies within Accounts Payable (AP) departments of investment management firms, instances of inaccurate expense allocation remain common. As a result, AP teams face high invoice processing costs and longer time-cycles. One of the most critical steps in the process is matching invoices with purchase orders and purchase receipts (PR). When this is done manually, there is a high risk of errors, such as misinterpreted information, incorrect data entry, and missed matches. The risk increases when dealing with high volumes of invoices. Discrepancies may also occur due to disparate systems and incompatible invoice formats.

3. Payment Delays

Lack of a systematic approvals workflow, inaccurate invoices, and internal processing issues are all common causes of delayed payments. Delayed payments present significant challenges for Accounts Payable (AP) teams, including strained vendor relationships, potential penalties and interest charges, reconciliation complexities, and compliance risks.

4. Communication Issue

Occasional communication challenges between Accounts Payable (AP) teams and vendors may arise due to a variety of factors. The high volume of invoices and vendor inquiries can be overwhelming for the AP team, making it challenging to respond promptly. Additionally, manual processing exacerbates this issue, leading to delays and errors in communication. These persistent communication issues can hinder the AP team’s efficiency in accurately allocating expenses, ultimately affecting financial reporting. Furthermore, it can potentially strain the relationship between the company and its vendors.

Fixing Common Vendor Management Issues with Automation

The AP team is responsible for vendor management and, most importantly, their timely payment. By leveraging intelligent automation, such as the Vendor Management module of IVP Expense Allocation Solution, managers can simplify the entire process and automate even complex allocation workflows. Some of the most critical capabilities of an automated approach include:

1. Optical character recognition (OCR): OCR automates invoice capture by extracting text from images or scanned documents, eliminating the need for manual data entry and significantly reducing the risk of errors.
2. Automated workflows: The IVP Expense Allocation Solution can create automated workflows for the review and approval of any type of invoice, so there is no longer a need to circulate invoices via email. This enables AP teams to focus on more strategic tasks, such as forecasting and financial analysis.
3. The IVP Expense Allocation Solution is an effective tool for managing contracts. It saves the AP team valuable time by providing easy access to contracts directly from the system, which are then tagged to related invoices. This means that all the necessary information is available for approvers of invoices in one convenient location. Additionally, the IVP Expense Allocation Solution alerts the AP team when contracts are approaching their expiration date.
4. The IVP Expense Allocation Solution offers a comprehensive audit report that provides detailed information. Audit trails are detailed records of activities and transactions related to expense allocation. They include all records of invoice approvals and specific dates of allocations. Having such records makes compliance and tracking much easier for future research and also simplifies communication.
5. KPI dashboard: A dashboard within the IVP Expense Allocation Solution shows all relevant KPIs for invoice processing in a single view. Components (see below) include:

• Invoices entered (monthly/yearly)
• Invoices submitted for approval
• Invoices that received approval
• Final payment amounts

The KPI dashboard is designed to help AP teams identify red flags earlier and resolve issues faster. It serves as an all-in-one solution for managing vendor payments, including tracking invoice status, ensuring timely payment, and maintaining accurate transaction records.

The ultimate goal of vendor management is ensuring efficient, accurate payment processing while maintaining positive vendor relationships. This can be more difficult than it sounds. For example, if a vendor expects payment in less than 30 days, average invoice processing time should be less than 30 days. The IVP Expense Allocation Solution helps in this regard by identifying which steps in the process, if any, are causing the delay and why. If the AP team is not submitting invoices with proper tagging, for example, approvers may reject the invoices. In this case, our solution showcases average rejection rates to help fix the issue.

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