Eliminate Late Payments in Your Auto Dealership with AP Automation

A 2023 report by PYMNTS and Finexio revealed that 64% of SMBs face delayed payments, with vendors waiting an average of 43 days to receive funds. For auto dealerships, which typically operate on tight margins and handle many vendors, these untimely payments can make maintaining smooth operations very difficult.

This blog will outline the problems late payments cause and give you more information about how you can utilize an AP automation solution to alleviate late payments and set your dealership up for sustained success.

How Manual Payments Contribute to Late Payments for Auto Dealerships

Manual payment processes in auto dealerships can lead to payment delays for a number of key reasons. Here are the most common ways manual systems contribute to late payments:

1). Paper-Based Invoices and Human Errors

Relying on paper invoices and manual data entry introduces a significant risk of human error to an accounts payable department because paper-based systems are slower and more prone to mistakes and oversights. In some cases, invoices get buried in piles, overlooked, or lost—which can result in a dealership missing payment deadlines.

2). Mistakes from Manual Data Entry

When accounting staff manually input invoice details into spreadsheets and financial systems, errors like incorrect amounts, wrong invoice numbers, or misidentified vendors can occur. These mistakes lead to incorrect payments or additional invoice processing time verifying invoice details.

3). Insufficient Staffing and Backlogs

Like many SMBs, auto dealerships struggle with insufficient staffing in their AP departments—especially during busy periods. When the volume of incoming invoices exceeds a team’s capacity, it creates backlogs that slow down processing. 

4). Slow Invoice Review and Approval Processes

With manual AP systems, each invoice typically goes through multiple stages of approval before getting processed for payment. The steps involved take a significant amount of time and often cause additional processing delays, particularly when a dealerhship is short-staffed.

5). Vendor Late Fees

Another consequence of delayed payments is the accumulation of late fees. While these fees might seem small initially, they add up quickly and can seriously erode profits. The cumulative effect of late payment penalties exceeds the cost of implementing an efficient automation solution for some dealers, making manual processes an expensive option in the long run.

Other Problems Late Payments Cause in Accounts Payable

Late payments introduce a host of challenges for auto dealerships beyond the immediate impact of lost time and frustration. When payments are consistently delayed, AP departments face increased workload in trying to resolve outstanding invoices. The end result is major operating inefficiencies as staff spend time reconciling accounts and answering vendor inquiries.

Strained relationships between auto dealerships and vendors are another residual effect of late payments. Because vendors rely on timely payments to maintain their operations, frequent delays lead to damaged trust and lack of cooperation. Sometimes, this even leads to stricter payment terms, reduced credit limits, or in extreme cases, the loss of key vendor partnerships.

What Is Accounts Payable Automation?

Accounts payable automation is the process of using data technology to manage some or all of the entire invoice-to-payment cycle. Depending on the extent of AP processes digitized, a business can streamline operations, reduce manual errors, and make timely payments to vendors. AP automation solutions are designed to handle everything from invoice receipt and approval workflows to payment processing—all while providing real-time visibility into the AP pipeline.

For your auto dealership, AP automation can be a game-changer since it removes much of the human error and inefficiency inherent in manual processes. Overall, by implementing an AP automation solution, your dealership will be able to eliminate bottlenecks, reduce its percentage of late payments, and strengthen vendor relationships.

How AP Automation Streamlines Accounts Payable and Eliminates Late Payments

AP automation directly addresses the root causes of late payments by eliminating manual processes and reducing opportunities for human error. Once an invoice is digitized and entered into your dealership’s DMS or accounting system, the approval workflow can begin immediately—often automatically—making your approval process faster and more efficient.

In addition, once your dealership gains the ability to schedule and track payments through an AP automation solution, your staff can set reminders and approve payments well in advance of due dates. This proactive approach ensures that your payments are never missed or delayed, therefore preventing late fees and allowing your dealership to manage its cash flow more effectively.

How Vendor Relationships Improve When Payments are Timely

Good vendor relationships are essential to the smooth operation of any business, and timely payments are one of the most important factors in maintaining these relationships. When your dealership consistently pays its vendors on time, you build trust and credibility—leading to more favorable terms such as extended credit limits, discounts, and priority in receiving inventory.

On the other hand, frequent late payments can damage your vendor relationships and lead to stricter payment terms, loss of credit, or even refusal to do business with your dealership altogether. By eliminating late payments through AP automation, your business can foster stronger, more collaborative vendor relationships that benefit both parties in the long run.

How to Automate Accounts Payable in Your Auto Dealership

Automating AP processes is a smart way for your auto dealership to streamline its operations and manage more timely payments. Here’s a simplified step-by-step guide on how to implement AP automation effectively:

Select the Right AP Automation Solution. The first step is choosing an AP automation solution that integrates seamlessly with your dealership’s existing DMS or accounting system to both guarantee smooth data transfer and minimize manual data entry errors. Review potential providers to check for integration capabilities.

Digitize Invoice Receipt and Data Capture. Once your dealership onboards with an AP automation solution, your staff can receive invoices digitally and automatically, typically via email. The automation solution then uses optical character recognition (OCR) and artificial intelligence (AI) to capture key data like invoice numbers, dates, and amounts—helping reduce errors and speed up processing.

Automate Approval Workflows. With your new AP automation provider’s assistance, you can set up your software to automatically trigger approval workflows, manage exceptions, and send invoices to designated authorities so invoices get sent to the right person for review and approval. 

Automate Payment Processing. After invoice approval, dealership invoice payments can be automatically processed using ACH payments, wire transfers, credit cards, or virtual credit cards. Some automation solutions will also allow you to issue paper checks if you have vendors not ready or willing to accept digital payments yet.  

Monitor Invoice Statuses and Cash Flow. With data made available in a cloud-based environment, AP automation gives your team real-time visibility into the status of invoices and payments—anywhere and anytime. This helps you avoid missing invoice and payment deadlines plus manage cash flow more effectively.

Create an Audit Trail for Compliance. An important benefit of AP automation is full digitization of your invoice documents. The resulting digitally stored and organized data creates a comprehensive audit trail of every step of the AP process. Besides assisting in compliance and reporting purposes, data made available in this format amplifies record-keeping and provides transparency in case of disputes.

Ready to Eliminate Late Payments in Your Auto Dealership?

Late payments in your dealership’s accounts payable department lead to more than just cash flow issues—you may also experience strained relationships with vendors, increased operational costs, and negative impacts to your dealership's bottom line. The solution? AP automation. By automating the invoice-to-payment process, your auto dealership can take steps to eliminate late payments, reduce hidden costs, and create more streamlined, efficient operations.

Ready to take control of your accounts payable process? Contact CloudX for a demo of our AP automation solution APSmart  and see how we can help your auto dealership eliminate late payments once and for all.