Elizabeth (Elle) Kowal

Healthcare supply chain vulnerabilities put focus on vendor relationships and payments

March 13, 2023
By Elizabeth (Elle) Kowal

As in other industries, recent supply challenges have interrupted the flow of essential equipment, medicine and other supplies. But the stakes are higher when it comes to patient care. So, no surprise that in MineralTree’s recent State of Healthcare AP Report, 75% of healthcare AP teams said that the importance of their vendor relationships has grown. And this means they need to do more to meet their vendors’ desire for faster, more accurate payments.

Supply chain instability creates problems for all finance and AP teams. But our research found that invoice processing challenges and delays due to supply chain disruption are 10 percentage points higher for healthcare teams (53%) than other industries (43%). This interrupts the flow of equipment and supplies needed by healthcare organizations to provide quality, uninterrupted care to their patients.

A growing focus on vendor relations
This supply chain turbulence underscores how critical it is for healthcare organizations to maintain strong relations with their suppliers to ensure a steady stream of medical equipment and supplies. In our survey, over 75% of healthcare AP teams agreed/strongly agreed that their vendor relationships have grown in importance over the past year – outpacing other industries by more than five percentage points.

But how exactly can healthcare facilities keep their vendors happy? When asked to identify vendor priorities, speed of payment (85%) is the number one response among healthcare AP teams followed by accurate payments (53%). This aligns with the top responses amongst vendors, who confirm their desire for fast (84%) and accurate (67%) payments. Yet, many healthcare finance teams find themselves burdened by manual invoice processing and payment methods, making it difficult to meet their vendors’ wishes.

Five tips for healthcare finance teams to optimize AP operations to strengthen supplier relationships
AP automation offers healthcare finance teams a way to overcome processing obstacles and deliver on their vendors’ needs for more prompt and accurate payment. Here are five specific ways:

1. Embrace AP automation to assist lean finance teams
A majority of healthcare facilities have automated at least some of their AP processes (61%). Yet only 18% are fully automated, likely due to the extensive efforts required to digitize patient records and other EHR-related initiatives. Over 85% of these teams report gaining efficiencies through automation, which lets them do more with less to overcome pressing staffing issues. More than 65% using automation are able to process more invoices and payments using the same-sized team, and an additional 21% have reallocated freed-up staff time to other projects.

2. Enable visibility and analytics to unlock better cash flow management
Automation gives AP teams visibility to the details and status of each and every invoice and payment. Coupled with analytics, this helps healthcare AP teams closely analyze their payment mix, identify early payment discounts, and measure KPIs. It also enables them to strategically prioritize payments to specific vendors and manage cash flow. This ensures they always have adequate funds on hand to pay for staff salaries and critical supplies.

3. Tap vendor payment services to save time and increase vendor satisfaction
Responding to the influx of vendor inquiries is another key area where automation providers help AP teams. With growing payment volumes and processing delays stemming from supply chain disruptions, many AP teams are unable to handle the subsequent rise of inquiries from suppliers. In fact, 11% of healthcare AP teams spend over 20 hours per month just responding to vendor inquiries, which is higher than other verticals (7%). At the same time, only 56% of vendors are happy with the response time on their inquiries, leaving a lot of room for improvement.

Self-service portals are one way to alleviate these problems by enabling vendors to check on the status of their invoices and payments. In addition, AP automation vendors may also offer payments services with their platforms, such as fielding incoming payment inquiries from suppliers. These services enable vendors to get prompt answers to their questions without bogging down their customers’ AP teams.

4. Maximize ePayments to speed up payments and cut costs
35% of healthcare organizations reported an increase in their use of virtual cards. Meanwhile 47% decreased their use of checks. These trends demonstrate the industry’s movement towards electronic payments (ePayments), albeit more slowly than other verticals. ePayments slash processing costs and delays by providing efficiencies and more timely payments. In addition, they provide added security by protecting against fraud. These advantages have prompted over 70% of healthcare AP teams to plan to make more payments electronically (e.g., ACH, credit card, or virtual card) this year. Virtual cards can also earn valuable rebates for AP.

5. Leverage enrollment services to speed up ePayment adoption
There are several obstacles to ePayment adoption. The top AP team concern is that vendors won’t accept them; yet an overwhelming 82% of vendors surveyed in 2022 said they want to receive more ePayments in 2023. This makes sense given the many vendor benefits to accepting ePayments including faster payment, increased processing efficiency, easier remittance, cost savings, and stronger security.

Two other common ePayment obstacles cited by finance leaders are limited bandwidth of AP teams to contact and enroll vendors, and concern with liability for managing vendor bank information. Qualified payment service providers can address all of these issues by conducting tailored campaigns to enroll vendors to accept ePayment methods like virtual card, and then enable them in the AP automation platform. As noted above, they can also handle payment inquiries to save additional time.

The last few years have been particularly challenging for healthcare AP teams, and market conditions are likely to remain, with hybrid work arrangements, finance staffing shortages, and supply chain volatility expected to continue for the foreseeable future. Automation provides a solution though. While healthcare AP teams are a bit behind their counterparts, they are readily embracing plans to automate, which along with managed services, can deliver a brighter, more efficient future with stronger vendor relationships.

About the Author: Elizabeth (Elle) Kowal is Chief Operating Officer at MineralTree, a company focused on creating frictionless accounts payable (AP) and payment processes. She has spent over 18 years in banking, finance, payments and business technology providing solutions for organizations of all sizes in multiple industries, including healthcare.