One common pitfall for growing businesses is a lack of focus on financials. Marketing strategies and product development are undoubtedly exciting. Still, more often than not, it’s the diligent work of finance and accounting teams that keeps the business on track and moving full steam ahead. 

If you’ve gotten by so far without financial forecasting, you may ask, “What’s the worst that can happen?”

The answer is “a lot” — and potentially at the worst moment. Absent or incomplete financial statements and forecasting can cause cash flow disruptions, inventory shortfalls, slow disaster recovery, reduced valuations, and problems obtaining credit

Solid forecasting doesn’t have to be elaborate, but it should be consistent, comprehensive, and data-driven. Today, we’re covering some basics of financial forecasting and budgeting and sharing ways to improve your financial reporting. 

With the right approach, you can move toward stronger financial positions and smoother operations through the inevitable peaks and valleys of running a business.

By the end of this article, you’ll know:

First, let’s define forecasting and budgeting a little better. 

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What is financial forecasting?

Financial forecasting is the process of using past financial data and current market trends to make educated assumptions for future periods. It is an important part of the business planning process and helps inform decision-making.

Effective forecasting relies on pairing quantitative insight with creative evaluation. Taking what you know and what you believe could happen near term, you can plan for what comes next. 

Forecasting factors in expected events such as predictable economic changes or business expansions. It also attempts to establish contingency plans for unforeseen events such as stock market corrections, natural disasters, or long- or short-term business disruptions. 

While forecasting cannot predict or avoid every pitfall — for instance, a global pandemic — it can ease the impact of outlier events and create opportunities for growth during advantageous periods. 

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Forecasting vs. budgeting

There are different financial forecasting models, each with distinct features and potential benefits. (It’s important to note that what many people call forecasting is actually budgeting.) 

Every business is unique and will benefit from different types of forecasting models. In general, businesses operate using either:

  1. A traditional, static budget that forecasts expected revenue and expenses in a single time period — typically 12 months. In this approach, the projected revenue and expenses are amended over the current period, but the time horizon remains fixed. Amendments during the forecast period happen in smaller increments as your approach period end. This forecasting process is sometimes called forecasting “to the wall.”
  2. Rolling forecasts take a dynamic approach to financial planning. Instead of making budget allocations and setting goals once per year, forecasting is conducted over shorter periods (often quarterly) and reviewed during each period for potential adjustments. Planning is continually added to the end of the forecast horizon. This dynamic approach to forecasting allows companies to engage in a less-intensive yet consistent forecasting and budgeting process. It is especially helpful for handling higher-variability scenarios such as fluctuating inventory and seasonal cash flow.

Why is financial forecasting important?

Forecasting is the basis of every financial decision your company will make in a given time period. Strong financial forecasting practices tend to lead to better financial outcomes, more stable cash flow, and better access to the credit and investment that can help your business grow

With a forecast in place, department heads can more effectively plan spending for their teams. Procurement and supply chain teams can plan capacity, manufacturing, and distribution. Sales and marketing professionals can develop metrics and reasonable sales targets based on the information analysis

Forecasting also serves as an important barometer for the overall health of your financial organization. As the fiscal year progresses, having well-documented forecasting can illustrate the effectiveness of current revenue-generating strategies, contextualize current performance, evaluate the market’s effect on your financials, and help identify and correct areas of misalignment. 

Forecasting serves your business decisions by: 

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Basic elements of financial reporting

The basis of your financial forecasting and reporting efforts will come from the three financial statements: the Balance Sheet, the Income statement, and the Cash Flow statement. These pro forma documents interconnect to reveal a holistic view of your company’s financial life. 

  1. Income statement: Shows business performance across periods. The Income statement reflects vital signs like revenue, cost of goods sold (COGS), gross profit, expenses, pre-tax earnings, and net earnings.
  2. Balance Sheet: This is a report of the assets, liabilities, and equity over the preceding forecasting period. It is a point-in-time financial snapshot of the company.
  3. Cash Flow Statement: This shows the cash movements in your business. The purpose of this statement is to show the net change (increase or decrease) in cash balance over each period. 

Five areas to review in financial modeling

When constructing any type of financial forecast, there are certain factors you’ll want to include in your reporting. Some, like past financial data, are concrete and easily contextualized. Others rely on advanced expertise to successfully identify and model outcomes. 

Five of the most important factors in a forecasting exercise are:

How technology improves financial forecasting and budgeting

Understanding the impact your variable costs have on expected revenue is the best step in creating more accurate forecasts for your company

The right software can make forecasting easier by helping you visualize expenses over time. This makes it easy to see where you’re spending your money, in order to predict future spending and unforeseen circumstances. 

  1. Procurement often represents the lion’s share of company expenses. Using an automated procurement tool can help organizations to find cost-savings opportunities within their current purchasing process. By centralizing your data and viewing results in real-time, you will gain granular spend visibility and context for expenses. This level of detail makes projecting future expenses easier
  2. These technology tools also help users streamline vendor and supply choices to reduce spending. Using curation in your purchasing saves money in the short term while stabilizing monthly invoices and creating a more consistent view of expenditures
  3. Processing invoices and payments can be time-consuming. By using a tool with Integrated payments systems, stakeholders can get what they need, and accounting can buy and pay for it faster. Using procurement software, users can automate invoicing to avoid penalties and realize early payment discounts. Improving your budget efficiency leaves more room in the budget for revenue-generating activities and strategies.

Using a procurement tool like Order.co, you can harness the power of data you already produce every day. Doing so can significantly improve the accuracy and effectiveness of your financial forecasting.

If your organization is ready to improve financial forecasting through better procurement management practices, schedule a demo of Order.co.

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Are manual tasks, decentralized data, and poorly documented policies bogging down your financial operations? If so, it’s time to stop relying on short-term fixes such as increasing headcount, and start implementing automation in your Finance function.

80% of CFOs report accelerating their investment in digital finance functionality for 2022. These numbers exceed the investment in other areas like talent, fixed assets (real estate and equipment), and supply chain. While migrating to a platform is a significant project and investment, it’s the most efficient and scalable long-term solution. Human teams, no matter how large or well-trained, can’t beat technology for optimizing processes.

In this article, you’ll learn how to improve your operational efficiency and save money by:

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Where to start optimizing financial operations

If your accounting and finance processes aren’t yet running on automated platforms, there are still ways to build in efficiency and prepare for automation. Implementing a few small process improvements will have immediate upside in terms of efficiency, and pave the way for easier integration of platforms and automated workflows.

Let’s review the top five methods of increasing efficiency in your current Finance and Procurement functions: 

1. Use strategic sourcing to improve savings

Streamlining your vendor list and strengthening supplier relationships is one of the first and easiest ways to improve financial efficiency. While strategic sourcing requires some work to collect your supplier data and benchmark pricing, you can start the process with only a spreadsheet and some help from the purchasers in each department or location. 

Embracing strategic sourcing has many benefits, including:

2. Standardize your procurement workflows

Start your stakeholders on the right foot by creating a well-documented, repeatable purchasing and approval process. There are a few benefits to codifying your purchasing process that include:

3. Establish purchasing prerequisites

Identifying departmental prerequisites lets stakeholders know the conditions they must meet for capital expenditures. For example, if your Finance department has certain requirements for contracts, such as avoiding single-year discounts or bundled services. Outlining your prerequisites avoids friction and wasted time during the approval process. This is especially true when negotiating a contract with a non-preferred or new supplier. 

By setting expectations in advance, you won’t be caught heading back to the drawing board halfway through a negotiation, potentially saving hours of time for you, your sales rep, and your approvals team. Establishing these internal policies in advance also reduces risks and liabilities for your organization. It creates guardrails for finance and legal reviews and ensures everyone adheres to the practices that successfully reduce risk. 

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4. Automate your AP process

On average, companies spend about 1% of revenue on their Finance function, with top performers (as defined by APQC’s Open Standards Benchmarking database) coming in at just over .5%. For bottom performers, that number climbs as high as 1.6%. The difference between top and bottom is automation. 

When it comes to reducing waste spending, realizing cost savings, and improving productivity, there’s no better place to start automating than your accounts payable and accounts receivable functions. Moving to a touchless process has some excellent short-term impacts on your business, such as: 

5. Integrate your accounting and financial operations systems

Data silos between accounting and the larger finance organization create problems and reduce visibility. When the accounting and larger ERP platforms don’t integrate, you’re creating redundant work and opening the door to discrepancies. 

Integrating your accounting and finance platforms creates: 

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Moving to an end-to-end procurement solution

While any one of the above tips can improve your financial operations and efficiency, implementing them all as part of a fully-featured procurement platform like Order.co helps the finance and procurement teams work together and revolutionize their practices. 

A procure-to-pay solution works by integrating your requisitions, invoicing, reconciliation, and payment processes into a single, automated system. These systems leverage AI and machine learning so your teams can get away from manual tasks. Automation removes many of the logjams and inefficiencies of manual operations and scales in step with business growth. 

A procurement platform offers the finance team:

Operations teams will benefit from:

With an integrated end-to-end solution, your finance, operations, and procurement teams can take advantage of advanced features to make better decisions and improve bottom-line strategy.

If you’re ready to future-proof your financial operations with end-to-end automation, get to know Order.co by scheduling a demo of the platform.

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Maximum efficiency and line-level visibility are the gold standard for finance and operations teams. Operations teams are always looking to be more efficient. Finance teams need all the visibility they can get. 

But, do companies always have efficiency and visibility? Unfortunately, no.

Is it possible to have more efficiency and visibility—on both your finance and operations teams? Yes.

The sad truth is, most businesses lack an organized approach to managing finance and operations. Finance teams don’t know what is being purchased, operations teams don’t know when products are being delivered or who is ordering what products. The top reason for mismanagement of finance and operations? The missing link between the two. Both departments must join forces to be as efficient as possible and help your company grow.

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What happens when finance and operations teams aren’t aligned

Let’s paint the picture of what can go wrong when your finance and operations teams are not working together.

Your business is bound to experience frequent hiccups if your two teams don’t have a centralized way to operate. Some of the things that can impact your performance negatively are:

Siloed ordering and purchase information

70% of business leaders feel the data they use to analyze finances and make forecasts is not accurate.

The finding shouldn’t come as a surprise for many finance and operations professionals. Your purchase and ordering information will remain in silos if your operations and finance are not sharing insights. This takes a tremendous amount of time, money, and other employee resources.

No clarity on budget or spending

A budget is imperative to company growth. However, you can only stay within your budget if you are able to track all your expenses. However, that seldom happens when your departments are disjointed.

As a result, you can never be too sure where your money is going, and what you are spending. Therefore, lacking complete visibility into your spending is unacceptable, and is counterproductive to growth.

No way to plan for future growth

Planning for the future is crucial to surviving these difficult times. Resiliency is key. Many businesses are yet to come out from the impact of COVID, so any plan must be highly pragmatic.

However, you will need real-time data and insights to plan for your future growth. Unfortunately, that can come as a barrier if your finance and operations aren’t collaborating.

Most importantly, you won’t be able to access real-time data readily, which is a challenge for 21% of finance executives.

But there is still hope and you can take steps to get your two teams on the same page.

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What happens when your finance and operations teams are aligned

Now, let’s focus on the flip side of things. Many businesses have been able to bring their finance and operations closer for a plethora of benefits.

However, it takes a bit of effort to ensure your two teams have a centralized way of operation. You should start by encouraging a change in your work culture.

The task would be to foster a more collaborative environment where employees feel motivated to work together. They should understand that the business can achieve its objectives only when the whole of it performs as a single unit. Empower your teams with the right tools to centralize your operations. For example, a B2B marketplace like Order.co can allow your finance and operations teams to stay on the same page. Some benefits of keeping your finance and operations teams aligned are:

Centralized and seamless purchasing

Order.co offers a user-friendly interface for finance and operations to…that’s right… order everything your business needs. They can use the same platform to source goods and services from multiple vendors. It also gives them a centralized way to manage suppliers and keep track of spending.

Let’s take the example of the Physical Rehabilitation Network (PRN). PRN’s product purchases were decentralized, and they relied on a very manual process for collecting and placing orders for each of their 140 locations.

Then came Order.co

Order.co allows PRN to order everything—every purchase—from a single place. Each of their locations found it very easy to use the software and place orders directly. PRN has a centralized way to track each order and know what purchasing is going on in every location. In addition, the company was able to save time and eliminate its manual purchasing process.

Fast and efficient order approvals

Approvals are necessary for every business in order to keep their purchasing under control. Not only are they necessary, but they should be quick and hassle-free. Instead, businesses waste endless hours trying to find who approved what, and why.

Sadly, that adds to the hours that you waste every year due to manual, inefficient processes. For most businesses, that can take up to 15 unproductive weeks per year. Admin and tedious paperwork are efficiency’s worst enemy.

Your finance and operations teams need an easier way to manage approvals. 

Take the example of CorePower Yoga. CorePower Yoga was struggling to manage approvals for purchases across more than 140 locations. Worst of all, they had no way to track or automate their manual purchasing processes. They had to dedicate an employee who collected orders from all locations and placed them with vendors.

Order.co now allows CorePower Yoga to empower every location to order approved products. By placing restrictions on purchasing through approval workflows, Order.co also allows CorePower Yoga to save $50K in unapproved spending every month. 

Granular, line-level visibility

Businesses need granular visibility into their spending for not only efficient expense management, but for future growth projections. Without proper visibility into your company’s purchases, it is impossible to budget and plan for any growth whatsoever. With line-level visibility, companies are able to see every single purchase made in a given month and how much was spent—thus making budgeting easier. Order.co enables businesses to consolidate invoices to have that exact line-level visibility companies need if they want to stay on top of every purchase and plan for future growth. It combines all invoices from your vendor purchases each month into a single monthly invoice. As a result, you can track and analyze every dime your company spends.

Accurate Budgets & forecasting

Let’s face it. Sometimes, employees on finance and operations teams may get a little distracted; they may accidentally put too many zeros after a purchase; they may forget (or lose) an invoice every now and then.

It happens. 

However, finance and operations teams can eliminate human errors. Imagine: no more worrying about the quality of your financial data. It becomes free of mistakes. Invoices are perfectly coded automatically in Order.co, so you can import the data directly to your accounting system. This gives you constant, up-to-date information to make more informed financial decisions.

With that, you also have full visibility into each of your expenses.

Based on how your expenses match up with your budgets, you can generate vital insights about not only your finance and operations teams, but your company’s future growth as well. 

Plan for future growth like a pro. With more accurate spend data, your future projections for growth are more likely to materialize.

Getting your finance and operations teams in Order

A business can reach new heights when its finance and operations collaborate. You can develop complete visibility into your purchases, orders, and payments. In addition, you can centralize your operations and improve vendor relationships by making timely payments. Moreover, you can process invoices faster and issue approvals with one click. The list of perks also includes cash savings, more productivity, and improvement in your bottom line.

Get your finance, operations, and entire company’s growth in order. Book a demo today to learn how Order.co can make that possible.

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Are your finance and operations teams still working in silos?

Most likely, yes.

So, what does that mean for your business? 

For starters, you can be among the 49% of CFOs who don’t have timely and accurate data to drive real-time, informed decisions. Additionally, you may even feature on the list of 73% of finance professionals who complain about the lack of in-depth data.

The truth is sad, out there, and hurting your bottom line.

Moreover, it will continue to impact your business growth as long as your finance and operations work as individual teams. Unfortunately, that is what most organizations are going through, even in this age of technological advance. The flip side of the coin is, however, quite appealing and profitable. Your business can operate as a whole unit when your finance and operations managers put their heads together.

What are the results?

You get real-time, accurate, and comprehensive data to fuel strategic decisions; you can generate vital insights and make accurate forecasts; the two teams can take your company to a whole new level.

Both finance and operations teams are crucial to a business. Therefore, it only makes sense that they can deliver better results by collaborating and sharing knowledge.

Let’s explore the role and impact of both teams, and how getting them to work seamlessly together can make for higher levels of both efficiency and company growth.

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What does a typical finance team do?

Most of us think the job of the finance team is to maintain accounts and create financial reports. It also ensures tax compliance and helps the business stay within its budget.

Undoubtedly, those are the traditional responsibilities of a finance team. However, today, the duties of the finance department are not so trivial. In today’s world, a finance team guides all of the internal and external financial decisions of a company. It provides the number and insights required to stay competitive in the market. 

So, what are some examples of the responsibilities of a modern finance team?

Conducting financial planning & analysis to facilitate strategic planning.

Financial planning & analysis is crucial to making realistic forecasts. It enables the business to predict how it will perform financially in the coming days.

The process pits forecasted results with actual ones to identify areas of improvement. It also allows the business to stay agile and deal with disruptions, like losing customers to a competitor.

Managing risks to avoid unpleasant surprises.

Most businesses today rely on debt to operate. As per Deloitte, the corporate debt of nonfinancial businesses grew by 5.5% annually on average between 2010 and 2019. In 2020, that percentage shot up to 9.1%. Debt is not always a bad thing. However, it brings a range of risks to the table. Therefore, finance teams try to identify and evaluate the risks applicable to a business. It looks at several factors like interest rates, legal nuances, and more to predict quantifiable impact.

This data empowers the organization to be in a better position to mitigate risks.

Managing and budgeting capital for optimum ROI.

The finance department is in charge of ensuring your business never runs out of money. Therefore, financial professionals manage working capital and make necessary forecasts. In addition, the team participates in capital budgeting to support business growth. It identifies the best projects and assesses the risks of investing available capital to derive maximum ROI.

Therefore, the finance team is (or, at least, should be) at the core of each and every company’s business decisions.

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What does a typical operations team do?

Would you think of conquering Mount Everest without a guide?

Even trained mountaineers will not dare to climb Everest without a guide. You will surely need someone who is aware of the local conditions to chalk out the best route. Additionally, you will rely on their assistance to arrange suppliers or predict bad weather.

Your operation team performs the same task for your business. It ensures your company keeps running efficiently and effectively to meet all business objectives. However, the exact processes and responsibilities may vary across organizations and industries.

So, what is the main focus for operations teams?

Help the business run smoothly and profitably

An operations team stays on top of all internal details that ensure the profitability of a company. It tries to provide all the right conditions for the business to deliver the right products.

As a result, operations teams are closely tied to customer satisfaction. Take the case of a restaurant for example. The operations team will be in charge of looking after the inventory and raw materials. However, the process is more complex than many can imagine. You not only need to ensure enough raw materials but also their quality and freshness. Additionally, your operations will consider the cost of the materials, labor, and associated processes. It will also work with vendors and suppliers to create long-term relationships.

Some of the responsibilities of operations teams include:

  1.     Managing and facilitating the optimum use of resources
  2.     Ensuring products and services meet customer needs
  3.     Helping C-suite in planning KPIs
  4.     Assessing customer feedback to suggest improvements
  5.     Optimizing supply chain to boost productivity
  6.     Managing and minimizing costs and risks

The final goal of any operations team is to encourage all stakeholders to champion an organization’s value. It also plays a big role in quality management and strengthening the reputation of the company.

Therefore, the operations team is as vital as the finance team to any business or entrepreneur.

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How can finance and operations teams work together?

A business can walk several ways to allow its finance and operations teams to work together. The process begins with a cultural change where everyone works to achieve business objectives.

We have seen how the responsibilities of finance and operations overlap for better results. However, organizations rely on different methods to facilitate collaboration. The simplest way to tie their processes together is to acknowledge two key truths:

Technology can come in handy to bring your finance and operations teams closer.

For example, spend management software can help your operations team to stay on top of monthly purchases and payments. In the same way, it can allow your finance staff to improve visibility over business expenses.

All team members can access accurate and real-time data from a single interface. As a result, you can also become proficient in expense management and spend management.

In addition, you can discover ample opportunities to cut costs and maximize value. AKA: grow your bottom line.

Automation can streamline the processes of both teams and lead to more profitability.

Your employees spend countless hours on manual and repetitive tasks. This applies to almost all departments—including finance and operations.

For example, your finance team has to go through endless invoices every day, week, and month. The process not only dents your productivity, but also adds to your costs and time. Fortunately, automation can be a key solution to streamline processes and eliminate manual work. Best of all, 1/3rd of tasks in 2/3rds of existing jobs have the potential to be automated. Therefore, it can help your teams save time and focus more on collaboration. It can also facilitate smooth operations and the expansion of your locations.

Take the case of High Level Health, for example. The company had to go through 400 pages of invoices and waste countless hours finding, verifying, and paying each and every invoice. However, High Level Health—in their expansion—utilized invoice consolidation and streamlined their vendor payment process using Order.co. They've since been able to achieve 100% invoice consolidation and save $4,400 in monthly costs.

“Order.co helps [each team] focus on the things [they] should be focusing on.”
Neil Hesse High level health

Getting your finance and operations teams on the same page

Businesses can increase profitability, cut costs, and improve the bottom line when finance and operations work together. That’s a given. However, no matter how “simple” it may seem, some organizations still find it challenging to bring the two teams closer.

To those companies who find themselves struggling to unify their finance and operations teams and cultivate growth, here are a few tips: 

Encourage more communication between your teams.

The first step of the process is to get the two teams to communicate more. You have to stay impartial and become the advocate for members of the two teams. You should aim to develop an environment like DevOps where developers and operations work together—only for finance and operations. Call it “FinOps”, or something like that. Be creative.

This way, both teams can share insights easier, faster, and collaborate to achieve your business objectives.

Standardize your business tools for optimum interoperability.

“Optimum Interoperability” seems like a big word. Technically, it’s two big words. Really, what it actually means is “the best way for your teams to communicate and work together”. Your teams may use a range of tools to work productively. That may work in some instances, but after a while, it may not always be the most efficient. In the modern world, you should always aim to standardize your business tools. Look for ways to integrate your apps using APIs or already integrated platforms.

Let's face it: Finance and operations teams are indispensable for businesses. Both teams impact the performance of the organization and growth. Therefore, it is imperative for both teams to work efficiently to achieve success. Moreover, the two teams should work together in close cooperation for making informed decisions.

Make growing easier on your business. 

Book a demo today to find out how Order.co can help your finance and operations unify for unprecedented company growth.

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Ask any modern business decision-makers about the essence of trade accounts payable, and you'll soon realize that it's one of the greatest tasks they face. After all, businesses must pay their debts, and they cannot afford to get this wrong.

Managing invoices accurately and promptly is almost an art, and it’s the key to maintaining good vendor relationships.  It's essential to understand the critical relationship between trade accounts payable and vendor relations and its impact on your company's bottom line.

In this article, we'll look at:

  1. What are trade accounts payable?
  2. How trade accounts payables are intertwined with procurement and vendor relations
  3. Managing the accounts payable process and its effect on profitability
  4. Why trade accounts payable matters

Download the free tool: Invoice Tracking Template

What are trade accounts payable?

Trade accounts payable (also called trades payable) refers to an amount that suppliers bill a company for delivering goods or providing services in the ordinary cause of business. When paid on credit, the company enters the billed amounts in the accounts payable module of their accounting software or balance sheet.

Any amounts owed to suppliers that the company immediately pays in cash are not part of trade account payables since they are not a liability. In the accounting system, businesses record trade accounts payables in a separate accounts payable account. They also credit the accounts payable account and debit whichever account closely represents the payment's nature, such as an asset or an expense.

It is worth noting that the classification of trade accounts payables is ‘current liabilities’ since they are payable within a year. When that's not the case, the business can classify the trades payables as long-term liabilities. Since long-term liabilities tend to have an attached interest payment, the accountant is more likely to classify them as long-term debt.

Trades payable vs. non-trades payable

One significant difference between the two is that you usually enter trades payable into the accounting system through a special module that automatically generates the required accounting entries. On the other hand, you typically enter non-trades payable into the system using a journal entry.

Trades payable vs. accounts payable

It's normal for some people to use the two phrases interchangeably, but they have a slight but important difference. Trades payable refers to the money you owe vendors for inventory-related goods — for example, business supplies or inventory. On the other hand, accounts payable include all your short-term debts or obligations, including trade payables.

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How is trade accounts payable intertwined with procurement and vendor relations?

Traditionally, your procurement department is responsible for maintaining vendor relationships, including contract negotiations, the pursuit of discounting opportunities, compliance to terms, and repayment processes.

Still, it is essential to know that the trade accounts payable process also plays a crucial role in the daily business mechanisms to keep vendor relationships on a positive track.

Research reveals that 47% of companies pay one in ten invoices late, while 16% admit that they pay one in five invoices late. Only a paltry 5% of businesses assert that they always pay their obligations on time, whereas one in 12 firms never monitors its payments processes at all.

Late vendor payments risk causing disruptions in the supply chain and cash flow. Some of the causes of late invoice payments include lack of automation, slow internal processes, lack of capacity to manage invoice volume, and administrative error. Unfortunately, all these are mere excuses for poor performance. Besides, vendors shouldn't have to accommodate internal process flaws.

Supporting a strong, continuous supply chain

Business vendors are crucial to your company's success. Consider, for example, the retail and manufacturing sectors. Regular business relies on vendors to provide the necessary products, parts, and raw materials to complete their end offering. As such, these companies can't afford to lose their key vendors due to inefficient trade accounts payable processes resulting in late, lost, or faulty payments.

Automating your accounts payable workflow speeds up invoice processing and ensures your vendors receive payments accurately and on time. In return, vendors are likely to deliver goods swiftly and offer future discount opportunities.

47% of companies pay one in ten invoices late, while 16% admit that they pay one in five invoices late.

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Profitability impact of trade accounts payable management

Just like other current assets or liabilities, trade accounts payable have a significant impact on your profitability. The single most critical thing you can ever do to maintain good vendor relations is pay your bills on time. Unfortunately, accounts payable management can get hectic and unwieldy. As your business grows, so does its suppliers and the invoices you have to pay.

Good vendor relationship management requires a mutually beneficial relationship between you and each supplier or vendor. A positive relationship is a win-win for all parties. Vendors will cut you good deals, suggest new and better products, and work with you on delivery policies and times.

It is prudent to cultivate good supplier relationships because they also mean increased company efficiency. To do this, always ensure that you:

  1. Pay your bills on time.
  2. Don't cut off suppliers without a valid reason.
  3. Keep open lines of communication.
  4. Elicit trust with all of your vendors and suppliers, regardless of how many you have.

In return, a good vendor could respond by offering you their best trade credit terms possible, hence maximizing your profitability.

One critical metric in any business's financial management process is its cash flow, which comes from business operations like financing and investing. It's worth noting that you generate profit from sales after paying all expenses.

Inadequate monthly cash flow means you won't have enough cash at hand to pay your bills on time, which means trouble with your suppliers. Often, vendors offer cash discounts if businesses pay within a specified number of days, like three months. That discount can have a significantly positive effect on your profitability.

Now, imagine getting cash discounts from all of your vendors and having enough cash on hand to take them. It will result in a significant effect on your net profit margin.

Why accounts payable management matters

The accounts payable management process focuses on ensuring that you pay your bills timely without choking cash flow. It further ensures you have sufficient liquidity to fund process optimization, investment opportunities, and product innovation to reduce your ongoing costs.

It's critical to optimize your accounts payable management, particularly for small business owners who rely heavily on their working capital compared to larger companies. Below are some reasons why accounts payable matter:

  1. Accurate and efficient workflows in your trade accounts payable system provide transparency and accuracy in your cash flow tracking and planning.
  2. Better cash flow management allows for more accurate budgeting.
  3. Effective management provides actionable insights that you can leverage to enhance contract negotiations and strategic sourcing. It also allows you to build stronger vendor relationships that give you access to better discount payment terms.

How do you audit trade payables?

The best practice to follow is to review the recorded cash disbursements subsequent to the corresponding balance sheet date. It allows you to determine which period to apply the related payables and whether it belongs to the previous one. Identifying unrecorded trade accounts payable enables you to manage all your current liabilities. You can also make payments on time to safeguard your vendor relations.

Trade accounts payable is among the essential tasks to get right. The risks of failure are too significant to leave to chance. A poor trade accounts payable process can damage your vendor relations and open you up to fraud risk.

Order.co helps finance and operations teams spend less time placing and managing orders. Peloton, Hugo Boss, XpresSpa, SoulCycle, and WeWork all use Order.co to:

  1. Place orders from one cart and approved catalog automatically across every vendor.
  2. Track real-time spending.
  3. Make actionable purchasing decisions.

Order.co automates your purchase orders, tracks delivery issues, saves you money, offers spend tagging and visibility, consolidates billing and vendor transactions, and unifies all your trade accounts payable data under one platform. To get started, schedule a free demo today.

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