No More Guesswork: How Retailers Use AP Automation and Virtual Cards to Protect Margins and Simplify Spend Management
by The Ottimate Editorial Team
In the grocery and retail industries, profit margins are razor-thin, so money can’t be lost on payment discrepancies. Invoices must be paid promptly to keep supplies on the shelves, and spending must be closely monitored and controlled. The trouble is that humans miss cost discrepancies, and it’s costing their businesses money. Let’s look at how AP automation is helping companies overcome these issues.
Preventing payment discrepancies
With tight profit margins at the best of times, grocery and retail stores can ill afford to overpay for the goods they receive. Smaller companies may not have the cash flow to cover overpayments. At the same time, the larger scale of larger organizations means that big orders are already expensive, without adding in the costly errors of receiving and payment. And yet all too many companies end up approving inaccurate invoices and paying the wrong amounts, potentially costing them thousands of dollars.
Part of the problem is that the receipts and invoices are often manually processed when goods are received at the back door. The vendor dropping off the goods obtains a signature for the delivery, and it takes time to compare the documentation for what was billed with what has been brought to the store. In some instances, payments may be made without this critical validation, meaning the company could be paying for a delivery with incorrect items, quantity, pricing, or all three.
For a business like Heritage Grocers Group (HGG) that has four brands – Cardenas Markets, El Rancho Supermercado, Tony’s Fresh Market, and Los Altos Ranch Market – this might easily lead to a large, costly problem.
“You could pay the vendor the wrong price or sell a product at the wrong cost,” said Greg Flores, corporate controller at HGG. “These can be big issues because we’re buying about $2.4 billion in products annually. We have to get our costs right.”
Before using Ottimate, a DSD vendor used to drop off a delivery at the back door of one of HGG’s stores; they’d leave an invoice that would be matched against the PO later as part of a slow manual process to make sure payment was only being made for the goods that were actually received.
Now, the moment that a staff member scans the receipt, Ottimate compares the invoice to the related PO. If everything is as it should be, it’s automatically routed for approval. However, if there are discrepancies between the two documents, the invoice is flagged so that someone can review it. This helps eliminate the risk of inaccurate spending, removes the delay between receiving each invoice and matching it with the PO, and saves time for the AP team.
“The receiver match is more immediate now because we scan the invoice into Ottimate, it matches instantly against the PO, and we catch the exceptions,” Flores said. “That’s better for us rather than the manual process that we had before.”
Previously, it was possible for HGG to receive unexpected deliveries and incorrectly associate them with the wrong supplier on an invoice. Ottimate removes the guesswork from the payment process and eliminates the potential for misspending to add up across the company’s 15 stores quickly.
“Ottimate prevents receiving from a vendor that we did not expect to receive anything from, and won’t let you select the wrong vendor,” Flores said. “So it offers some better controls. And it should prevent misspending by catching mistakes when the invoice doesn’t match the PO. We can then go to the vendor and see if they didn’t get their pricing right or our purchasing department got the payment amount wrong.”
Simplifying spend management with virtual cards
Compensating suppliers is only one type of payment that retailers and grocery stores have to make. They also have to pay for repairs and maintenance, incidentals, office equipment, travel, and many other kinds of expenses. Big businesses can turn to corporate credit cards, but this isn’t an option for smaller companies, like Clutch Coffee Bar, which has 21 stores across North and South Carolina.
“It’s hard to get corporate credit when you’re small,” said Jake Vandermeer, CFO at Clutch Coffee. “We wanted something in place now that could scale, and traditional corporate cards aren’t really going to underwrite that.”
Most other credit card programs won’t work for small and mid-sized companies because they require a minimum balance, a credit check, a personal guarantee, or all three. The Ottimate card doesn’t have such prerequisites, allowing Clutch Coffee to get up and running quickly with virtual payments.
“Most corporate cards out there didn’t work for us because of stringent cash balance requirements,” Vandermeer said. “Ottimate’s corporate debit cards are way simpler. I can issue one with a single click, control the card’s rules myself, and monitor all of my purchase activity in real-time. Aside from payroll, rent, and some utilities, we use the Ottimate Card for almost every cash outflow our company has.”
The virtual cards that Ottimate offers enable Clutch Coffee to implement tighter controls for all types of purchases. Virtual cards are randomly-generated single- or multi-use credit card numbers that are linked to an overarching credit card account. They make it easier to manage payments and expenses for existing locations and to get new ones up and running quickly.
“The benefit of virtual cards is being able to pre-assign cards and give them to vendors,” Vandermeer said. “Then you don’t ever have to think about it anymore. When we set up a new location, our Director of Growth creates a group of new cards and distributes them to the store. That way all the expense reporting for that store, on a recurring basis, is set up and automated. So, for example, we have the utilities card. That’s where we put the internet and the electric bill. There’s also a software card we give to our POS vendor, Spotify, and whatever else.”
In addition to serving as a virtual cards program, Vandermeer also issues physical Ottimate Cards that make it straightforward for authorized employees to pay for a wide range of goods and services.
“Everyone at the company at the Store Manager level and above has a physical card,” he said. “The biggest use case is incidentals, like if they run out of ice and have to run to the grocery store or something. Around a new store opening, the charges get a lot more diverse because people are rushing around buying small wares or small equipment or tools. Meanwhile, a Regional Manager or Director of Ops will use the card for gas, because they’re driving around multiple hours per day to visit different locations.”
Every virtual and physical card issued by Clutch Coffee has a preset limit to prevent overspending. It is also assigned to a specific GL account, so when a transaction is made, it is automatically classified. The system then updates Clutch Coffee’s NetSuite ERP platform. This makes it much easier to complete month-end expense and payment reporting.
“If we didn’t have the Ottimate Card, those charges would have to be put onto someone’s actual credit card,” Vandermeer said. “At the end of the month, they would have to go through and classify those transactions and potentially upload receipts. It’s just a huge pain. So there’s value in locking in straight-through processing, where the vendor charges the card and it goes immediately into Ottimate. That card is already classified, and it is exported to our ERP and journaled to the corresponding expense category. That’s huge.”
To learn more about how Ottimate can improve your PO matching, payments, and expense management processes, schedule a demo today.