Why Vendor Payment Automation is Critical in Healthcare

Automation not only eases the financial pressure these organizations are often under but requires less manpower, which helps overcome challenges associated with worker shortages, all while supporting a positive vendor relationship.

The pressure to continuously improve patient care and services, while increasing cash flow, can be hard to juggle as the healthcare industry grapples with reduced revenue and narrow margins. Healthcare organizations will struggle to create efficient workflows, foster positive vendor relationships, and most importantly, provide quality care for patients if steps aren’t taken to streamline business processes.

Challenges Faced in Healthcare Today

According to recent data from the Bureau of Labor Statistics, the Consumer Price Index rose 0.8% in February 2022, and the all items index increased a whopping 7.9% over the previous 12 months. The U.S. hasn’t seen inflation this high since the early 1980s. This rise erodes purchasing power and impacts the healthcare supply chain, not just due to higher costs, but due to associated delays and price volatility.

The COVID-19 pandemic also severely strained the nation’s healthcare system and led to many overworked individuals who opted to leave their jobs due to the stress.

In a 2021 survey conducted by McKinsey of 400 frontline workers, 32% of nurses noted that they may leave their roles. This challenge isn’t limited to front-line workers. According to a MineralTree survey, 56% of healthcare organizations anticipate challenges or delays in filling back-office roles like Accounts Payable. This means that those in the healthcare sector must do more with less.

Worker shortages and increased staffing costs are straining hospitals and their bottom lines. Additionally, these worker shortages can impact relationships with vendors and the overall healthcare supply chain.

The Growing Importance of Supplier Relationships

Supplier relationships have always been critical in healthcare, but a recent report suggests the importance has grown even more as we look to the future. According to the 2021 report, supplier payments volumes either stayed the same (52%) or increased (38%), with healthcare cited as one of the sectors accounting for most of the reported increases. While 58% of respondents across all sectors said their supplier relationships became more strategically important, that number was 73% in the healthcare and biotech sectors.

The Hidden Costs of Manual Processes and Paper Checks

Often due to budget constraints, the healthcare industry tends to be slower when it comes to adopting technology. Much of this sector still relies on paper checks and manual processes, which eat up both time and money compared to paperless and automated processes.

In fact, healthcare’s heavy reliance on paper — in the form of mailed paper statements, paper check payments, and more — is estimated to cost around $300 billion per year. The average time to process a manual paper-based transaction is 8 minutes and costs roughly $3 more than an electronic transaction.

However, outside of these tangible costs, manual processes can also place a strain on important relationships with suppliers and vendors. Lack of transparency in the payment process, duplicate payments, and human error can negatively impact these relationships, which can lead to delayed shipments and even affect the bottom line.

How Manual Processes Can Strain Vendor Relationships

Not only does a reliance on manual processes cost healthcare organizations both time and money, but it negatively impacts vital relationships with vendors in a number of ways, including the following:

  • A Lack of a Streamlined Way to Capture Invoices. Vendors must send invoices to the healthcare companies they supply to receive payment for the service provided. These invoices may be sent via mail, email, or through a vendor portal, and then be captured, or properly entered and coded into the accounting system. When healthcare companies don’t have a streamlined way to do this, human error, delays in payment, and duplicate processing can fog up accounts payable processes and stunt positive supplier relationships.
  • Slower Invoice Payments. Manual processes slow everything down. From invoice capture, to approvals, to initiating payment, every step of the manual process is time-consuming and extremely error-prone. This is further exacerbated if those payments are sent via check since printing and signing the checks take additional time, as does moving through the postal system. And once the paper checks arrive, they must be processed by the recipient’s bank.

    Contrast this with an automated AP process, which results in more timely payments, since these can be disbursed more quickly. Vendors don’t want to have to wait forever to get paid and spend the intermediate time in the dark. AP automation allows vendors to have complete transparency into the payment process as well as detailed remittance data, so vendors are always “in the know” and can more easily reconcile these  payments.
  • Increased Human Error. Manual processes also introduce human error into the equation. Error can happen with invoice capture, particularly if the information is entered manually. Additional errors, as well as processing bottlenecks, can also occur at other stages of the invoice process as well. This includes delayed approvals, inaccurate payment amounts, or in some cases, duplicate payment processing for previously entered invoices.

    At the end of the day, vendors don’t want to spend any more time contacting you about errors and dealing with the resulting complications. Human error will continue to disrupt streamlined AP processes and supplier relationships if not managed with a solution that eliminates these error-prone manual processes.
  • Duplicate Payments. When AP processes are inefficient, slow, and unorganized, sometimes invoices are sent twice before a payment is rendered. This results in duplicate payments which present a series of issues between the healthcare organization's AP department and the vendor. Now time, and money, are spent trying to restore the duplicate payment, identify additional errors within the payment process, and reconcile vendor relationships — all tasks that stunt AP efficiency and growth.

How AP Automation Improves Healthcare Operations

Luckily, there’s good news! Healthcare organizations that want to improve their supplier relationships and streamline their AP processes, all while navigating the challenges of tight budgets and worker shortages, can do so with the right automation solution. Adopting AP automation technology can help these organizations stay within budget while doing more with less.

Automation not only eases the financial pressure these organizations are often under but requires less manpower, which helps overcome challenges associated with worker shortages, all while supporting a positive vendor relationship.

Faster Invoice Approvals

The right AP automation solution can eliminate errors and bottlenecks associated with invoice approvals. Instead of relying on physically passing paper from one desk to the next for approval, invoices can be automatically routed to the right people electronically. This means there’s no paper to get lost in the shuffle, and the approver can approve payments from any internet-connected device from anywhere in the world. Having easy, adaptable approval processes in place is particularly important for frontline workers, who may not be in front of a computer all day. Furthermore, automatic reminders can prompt those who have yet to respond in order to avoid further delays.

Better Suited for a Hybrid Environment

Many organizations, including healthcare, have transitioned to remote or hybrid work environments. This means that all the individuals who must interact with an invoice from start to finish may be spread apart and not even in the office. And paper-based processes are definitely not suited for such arrangements. Electronic processes don’t require anyone to be physically in the same location as any particular piece of paper, making AP automation much more suitable for hybrid and remote work environments.

Increased Transparency

By using AP automation, all information associated with an invoice is in a centralized location, including where the invoice is in its processing, what approvals have occurred or are still needed, and how and when payment will be rendered. If a vendor calls to ask about an invoice, the AP department can offer this information instantly instead of trying to track down papers. Some AP platforms also have supplier portals that allow suppliers to view this information at any time, as well as update their information and add invoices as needed.

The Ability to Scale

With the labor shortage, it’s important for many departments to do more with less. However, when the rate of invoices increases, it becomes an impossible task to manage these without errors. Though, with automation, 64% of surveyed companies were able to handle more invoices with the same staff. BrightView Health, a company providing outpatient medication assisted-treatment, made the switch to automation to deal with its increase in invoices. Previously 65-80% of their invoices were received via mail. Entering the data took five to seven minutes per invoice. Using this process, BrightView Health was able to process 3,000 invoices a year. However, when that number rose to 10,000 a year, they implemented an automation solution, reducing their entire AP process to “mere minutes.”

Improving Supplier Relationships Through An End-to-End Solution

Free your AP department from repetitive manual tasks and inefficient paper processes with an end-to-end AP automation solution. Not only will an automated solution help streamline your AP processes, but it can help you capture early-pay discounts, rebates, and other money-saving opportunities.

Moreover, you won’t need to increase headcount to handle fluctuating invoice volumes. In return, your healthcare organization will support a positive supplier relationship with faster payments, fewer errors, and improved transparency, while also gaining access to KPIs and analytics tools to help make data-driven decisions.