Erik de Kroon
CEO & Founder
November 9, 2022
combining the best of pay-on-invoice and cards

A new process for small supplier payments

Managing small supplier spend remains a headache for most organizations.

The cost for onboarding suppliers can range from $1k-10k and sometimes much higher for Enterprise customers [1]. Even if we assume $2k that still means $1k per year assuming an average supplier lifetime of 2 years.

It is estimated that the average business spends $10 processing an invoice [2]. This analysis did not include PO approval and 3-way matching for which we will assume another $2. Finally, we need to amortize the supplier boarding costs. Taking a generous assumption of the supplier sending 6 invoices per month that more than doubles that cost to $25 per invoice.

Corporate cards: better but not yet perfect

Corporate cards or P-cards are used for many of these tail spend payments today because they are convenient for both buyers and suppliers. 

For the supplier, P-cards allow them to get paid on time without having to chase their customers. This comes with a hefty card payment fee of up to 2.5% but that is sometimes still worth it for small invoices.

For the buyer, employees can use cards to avoid the overhead of the PO process while the finance team benefits from less time spent onboarding suppliers and matching invoices. Assuming the card payment is put through as an expense, we estimate that a card payment costs around $2 per supplier payment in people time compared with $25 for pay-on-invoice.

However, there are important downsides to cards for buyers

  • Cards allow employees to bypass spend approval processes. They also allow employees to buy from non-preferred suppliers thereby missing pre-negotiated discounts
  • Card statements lack the data required to analyze spend and sometimes also the data required for proper VAT filing 
  • Due to the high fees, many suppliers won’t accept cards limiting the potential of using cards to reduce invoice processing costs

There must be a better way.

The ideal small supplier payment process

The ideal small supplier spend payment process combines the ease of use of P-cards with the control and data of the PO-invoice process. We will call this the 'One Vendor' process for reasons explained in the next section.

Table 1: ideal small supplier payment process

PO-invoice One Vendor Cards
Best for Large invoices Small invoices Expenses
Number of payments One per invoice Single payment for group of invoices Single payment for group of expenses
Supplier negotiation done by Procurement Employee Employee
Supplier boarding Full supplier boarding Self-service supplier boarding None
PO Yes Optional No
Payment approval Invoice matched with PO and receipt note Employee approves payment Employee approves payment
Data for accounting From the invoice From the invoice Provided by the employee
Payment terms Pay later, but early pay option available Pay later, but early pay option avaible Pay now
Payment method Bank transfer Card or bank transfer Card
Guarantee of timely payment No Yes Yes

This process would give buyers the ability to:

  • Have visibility over suppliers used
  • Avoid supplier boarding costs for small suppliers
  • Avoid PO/invoice matching for small invoices
  • Negotiate payment terms including an early pay program

For suppliers, it would:

  • Avoid the need to have to chase customers for payment
  • Offer low payment cost

What this process looks like in practice

Similar to card payments, the buyer should receive a single statement or invoice every time period. Unlike card payments, that statement includes all the data the buyer needs for their accounting system: amount, taxes, supplier, line items and cost code(s). This data can also be used for spend analysis by the procurement team.

An important difference between this ideal process and card payments is supplier boarding. Card payments offer little information about and no communication with suppliers. Supplier boarding should be self-service to keep costs down for both suppliers and buyers.

At least one supplier still needs to be set up in your ERP system which will be the facilitator of the service. We therefore called this process the 'One Vendor' process.

Similar to the PO-invoices process, an invoice and/or justification of the spend is still required before a payment is released. However, unlike traditional invoice payments but similar to cards, approval by the employee is sufficient to release the payment on the (negotiated) payment due date.

Also similar to card payments, a supplier should be able to trust they will be paid on time. The payment provider guarantees timely payment just like card payment providers do.  

A final but important difference with cards are the payment fees for suppliers. The One Vendor process can work on any payment ‘rails’ (cards, bank transfers, crypto) and the buyer or supplier should be able to choose the payment method and fees that best fit their needs.

About Yordex

It is possible to implement this One Vendor process today. At Yordex we work with many organizations to drastically reduce their invoice processing costs while retaining control and visibility.

To find out more, please contact us.