If you’ve heard me speak, read our blog, or had a conversation with me you probably know that I am passionately opposed to Supplier Networks. Vendor relationships are important in business, and financial transactions are messy enough without forcing unrealistic conditions onto those valuable business relationships. I believe, and have seen it demonstrated, that a closed loop network is limited in its effectiveness and scalability which means it will always be detrimental to business growth.
However, no matter how I feel about them, Supplier Networks are a reality of the modern financial operations landscape. So whether you like it or not, if you are an Accounts Payable or an Accounts Receivable professional you may find yourself being forced to work with one.
We recently had the opportunity to see the Supplier Network enrollment process up close and personal. About a year ago our Accounting Department received an email from a client informing us that their Purchasing Department was introducing a Supplier Network and that they were inviting us to create a profile in the provider’s system. They made it clear that they were hoping for our compliance, but it looked time consuming and offered no benefits to us so we elected not to participate. Plus, we have a lot of “inside skinny” on how these networks work and we wanted to see what would happen next.
For a long while nothing happened. Then we received another email. This one was couched in rather threatening terms with words like “required to comply” and “all invoices must be submitted” that made it clear that they were no longer hoping for our compliance but were rather demanding that we get on board. The email had a Purchase Order attached that was frankly confusing and difficult to decipher.
Interestingly enough, we have been billing this company for over a year outside of the network without a problem. We generate our invoices like most companies do, through a batch run from our ERP system. In our case invoices are processed weekly, but our clients who are in manufacturing or distribution generate invoices all day every day as product is shipped. That is pretty much how any company keeps track of what they are owed, and it’s how they expect to be paid. Today this process can be made highly efficient using accounts payable automation technology that ties invoices to all of the upstream systems that earn or generate revenue. This automation also allows AR departments to be very cost effective, churning out thousands or even tens of thousands of invoices each month. Guess what happens when a company is forced to change that cost effective automated system in order to comply with a Supplier Network? Right, their costs increase. Guess what they do to cover those costs? Most of them do what any company would do, they pass it on in the price you pay for goods and services.
We work with a lot of large global companies on the AR side and they’re adamantly against Supplier Networks because of the added demands on their Financial Operations resources, both in terms of time and direct costs. For most of them, the time is more difficult to swallow than the cost as many companies are not hiring additional staffing in Financial Ops. A forced change in their AR process means using overtime from the people they have today that were already feeling overworked. Not only is this expensive, they know that these overworked folks will eventually burn out and find new jobs. Add to that the number of customers these companies have to bill — and you realize why they hate the concept of closed loop networks.
Let’s say you have 40,000 customers and they all use a different Supplier Network — each with a different set of systems and rules — how would you ever interface with them all? Now assume that even one of those customers change their Supplier Network. Or the Supplier Network changes its rules, which happens all the time. Of course you know there will be even more change when you take on new customers who are on yet another Supplier Network or when you change the products or services you provide.
Because we work closely with our clients, we have been involved with the implementation and rollout of several of these Supplier Network solutions. One thing we hear over and over is that it is a daunting task to convince vendors to change their business processes. Many vendors are understandably not interested in adding cost or hours to their Financial Operations team. All vendors have their own business process around AR and billing, a process that has to change in order to meet the Supplier Network’s requirements. Supplier Network providers do offer vendor onboarding services — for a fee. Clients who have attempted to do their own onboarding tell us that they had to have very experienced resources calling and meeting with vendors to help fully understand and successfully meet the Supplier Network requirements.
To respond to the recently received demand that we comply with our client’s Supplier Network process our Financial Ops team has spent time formulating their questions and will be contacting the client’s AP department to gather more information about what to do with this transaction. On our side they’ve already had to involve members of the Sales Department, Client Success and Support, and the Accounting Department. On the client’s side just imagine how many other suppliers received a similar email and are going through this same change process and calling their AP Department. Imagine the time their Financial Ops team will spend answering questions and trying to explain the new process, asking Purchasing for clarification — time they could spend proactively making sure AP transactions happen.
We have learned that this particular provider offers the ability to “flip” the PO they are sending and turn it into an invoice. That might sound attractive from the early evaluation — but think about this; if you were to suddenly not send certain invoices out of your AR system because you accepted the inbound PO as the record? What is your system of record now? Do you have to update the Finance/ERP system separately? Do you just print these invoices and throw them away or will someone file them “just in case?” Can you get a copy of the invoice from the Supplier Network provider? However you handle it you know it will be different and outside your standard process and it could be downright against your firm’s control processes.
In our experience most users of a Supplier Network set a goal of having a certain percentage of their vendors converted to the new process. But then what happens to the rest of the vendors and their invoices? Usually they end up offering workarounds to certain valued vendors or categories of spend. That’s a lot of effort just to automate a portion of your process isn’t it? And for what return?
Ultimately this “up close and personal” experience of having a vendor try to force us to enroll in a Supplier Network is not only confirming what I’ve previously observed about the problems inherent in the Supplier Network concept, it’s revealing even more ways that adding a Supplier Network to your process creates unnecessary complexities and costs on both the Accounts Payable and the Accounts Receivable side. On the Payables side you have to consider the costs of enrolling your vendors, maintaining both your new process and a second process to accommodate vendors who refuse to comply or finding alternate vendor relationships, and possibly paying increased fees because your vendors are unwilling to absorb the additional costs of compliance.
If you’re in our position of being the vendor you have to consider whether or not the client relationship is worth the hassle and direct costs of changing your AR process in order to get paid. In either case, this has strengthened our dedication to providing a Single Stream AP solution that allows our clients to process any kind of invoice in any format efficiently and cost effectively — without resorting to a Supplier Network.