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All About Automation of Vendor Management in Accounts Payable

By Annapoorna

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Updated on: Dec 21st, 2023

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9 min read

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Traditional methods of vendor management can often be labour-intensive, prone to errors, time taking, and hinder proper communication with vendors. This is where automation comes into play! Automating vendor management provides centralised data, strengthens vendor relationships, and saves time and resources.

Continue reading to know more about what is vendor management in accounts payable and how automating vendor management can enhance accounts payable

Basics of Accounts Payable Vendor Management 

Vendor management helps businesses build and sustain long-term relationships with their suppliers. The process begins with selecting vendors, mitigating risks and ends with payment processing. 

Vendor management in accounts payable covers the entire vendor relationship lifecycle — from the initial vendor selection to the ongoing monitoring of their performance and managing associated risks. 

Accounts payable vendor management is actively working with suppliers to keep things under control as AP staff fulfils their responsibilities. It is all about maintaining harmony between the workflows, systems, and integrated technologies that enable AP to operate seamlessly. 

That said, accounts payable vendor management is also about realising that when it doesn't happen, problems might escalate.

Here's vendor management accounts payable example. Let's consider the vendor management process in accounts payable of Company ABC: 

  • Vendor Selection: ABC’s procurement team chooses vendors based on factors such as product quality, pricing, and reliability. 
  • Vendor Onboarding: The vendor provides necessary documents, such as KYC, tax forms and banking details, while ABC reviews them and sets up the vendor in its system.
  • Performance Monitoring: ABC establishes key performance indicators (KPIs) to assess vendor performance and meet the agreed-upon standards continually.
  • Vendor Reconciliation: Regularly reconciling vendors including invoices, payments, and orders ensures that there are no discrepancies between ABC and its vendors.
  • Vendor Risk Management: It evaluates supplier risks, including financial strength, global factors, and weaknesses in the supply chain.
  • Vendor Payment Process: ABC initiates the vendor payment process once goods or services are received. It matches the invoices with purchase orders and delivery receipts, after which the finance team approves vendor payments.
  • Vendor Off-boarding: Finally, ABC concludes its partnership by removing them from its vendor management systems.

Why is Accounts Payable Vendor Management Important?

Accounts payable processes help companies optimise their procurement process, automate workflow, and process vendor invoices on time.

Here are some more benefits of the vendor management process in accounts payable:

  • Effective vendor management allows businesses to set clear performance expectations and monitor vendor performance against established metrics and KPIs. 
  • It helps strengthen relationships between businesses and suppliers by ensuring smoother transactions, which promotes mutual trust.
  • Vendor management ensures supplier contracts are well-negotiated and aligned with businesses’ goals. To avoid misunderstandings, the contracts should clearly state the terms and conditions, including payment schedules and performance expectations.
  • Vendor management makes it easier for businesses to streamline procurement processes. This reduces administrative burdens and errors while speeding-up transactions. It also helps them manage the bidding process and evaluate chances of getting better prices. However, before this, companies need to submit a request for proposal (RFP) so that the vendors can effectively plan their offerings. An RFP is a company document that outlines the project's brief outline and needs.  
  • Vendor management helps businesses ensure their vendors follow the necessary rules and standards. This covers areas like safeguarding data, upholding eco-friendly norms, and maintaining ethical behaviour.

How Can Businesses Improve Their Vendor Management Process?

Improving vendor management makes operations efficient, relationships stronger, and promotes effective cost control. Here are some strategies businesses can implement to improve it:

  • Establish clear vendor selection criteria: Create well-defined guidelines for selecting vendors and clearly state what you're looking for. Consider factors like product quality, pricing, and reliability, making the selection process more accessible and focused.
  • Define Key Performance Indicators: Set up clear markers to measure vendor performance, including on-time delivery, product quality, and responsiveness. 
  • Optimise globalised payments: Businesses need to streamline payment processes to ensure smooth cross-border transactions when dealing with international vendors. For example, managing currency exchange rates and selecting the most suitable payment methods.
  • Leverage automation: Leveraging technology to automate and streamline vendor management processes saves time and enhances accuracy. Vendor management software can also help you track vendor performance and efficiently manage contracts.

How Does Automation Help Vendor Management In Accounts Payable?

Automating vendor management accounts payables refers to the process of using technology to streamline vendor management processes. Automation tools provide businesses with centralised data, dashboards, and insights, to help monitor and improve vendor relationships.

Here are some more ways how automation enhances the vendor management process in accounts payable:

  • Timely payments: AP automation streamlines payment processes, making validating and approving invoices promptly easier. 
  • Vendor onboarding: AP automation simplifies supplier onboarding through focused enrollment campaigns, ensuring a smooth process for both parties. 
  • Enhances communication: AP automation facilitates systematic updates, offering real-time data and analytics to procurement and management. 
  • Improved workflow: AP automation streamlines payables activities, reducing manual errors and increasing speed and work quality. With an organised workflow, AP staff can anticipate queries and stay on top of payment status. 

Conclusion

A vendor management system in accounts payable can be a great asset and investment for a business. Automating vendor management in accounts payable can boost payment-to-purchase processes and help strengthen vendor relationships.

About the Author

I preach the words, “Learning never exhausts the mind.” An aspiring CA and a passionate content writer having 4+ years of hands-on experience in deciphering jargon in Indian GST, Income Tax, off late also into the much larger Indian finance ecosystem, I love curating content in various forms to the interest of tax professionals, and enterprises, both big and small. While not writing, you can catch me singing Shāstriya Sangeetha and tuning my violin ;). Read more

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