There are few business problems that once tackled provide a plethora of additional, real and tangible benefits to an organisation – a true double whammy. Procure to Pay is one such process that keeps on delivering for clients.
On the face of it it’s a simple ‘accounting routine’ that helps approve invoices to Suppliers for payment and often the source of much of the admin ‘treacle’ that bogs down company’s, stopping them progress without ever more admin resource to unblock it. However, a ‘good’ Procure to Pay process can turbo charge the organisation from an operational burden to a truly effective element within a Procurement Strategy.
So what are the issues that potentially need to be resolved? There are many classic indicators of poor or broken processes.
Suppliers invoices are paid routinely late or under duress with Accounts staff complaining that they can’t pay what they don’t know about.
Orders to cover Suppliers invoices are raised retrospectively adding further to delays – ‘because that’s the way the process was designed’.
New Supplier accounts are created regularly – often where preferred deals are already in place, and often due to those inside the business being blissfully unaware of such arrangements.
Duplicate Invoices are requested of Suppliers because the originals are ‘lost’ within the approval chain. Often both original and duplicate get paid!
Threats of litigation from Suppliers force a culture of ‘Pay on Demand’ rather than ‘Pay to Terms’ – cash flow planning for Supplier payments is not a normal way of life.
The normal reaction to solving these problems is to take on more admin staff to manage the Accounts Payable function – dealing with routine transactions rather than exceptional circumstances.
The underlying business process is however pretty straightforward and if properly supported within the organisation (particularly by systems & governance) can operate really effectively.
In essence this process covers the following:
Guiding someone within the organisation having a need to buy.
Being directed through simple steps to request the right items or services from the right supplier at the right price.
Pre-approving this requirement before it is communicated to the chosen Supplier provides the transaction trail that follows.
Matching the Order with the Invoice.
Releasing the payment on the agreed date.
Simple – right?
Well yes it is if approached and executed well and using the right systems to support the process. As with most things in life there are good approaches to making transitioning an organisation to achieve these aims – and there are those not so good! And getting the right solution is no longer a huge price ticket only available to the biggest buying companies out weighing many of the benefits.
So what of the hidden benefits that emerge from effectively deploying a good Purchase to Pay solution? The value of these can vary enormously, but instead of being faced with a big increase in admin costs we find:
Pre-approval of Spend enforces internal cost management and budgetary controls reducing maverick and unnecessary expenditure.
Spend is channelled to Preferred Suppliers – a status that can finally mean something to you and your supplier. Savings of 20-40% of not unknown as a result.
Spend can be linked to Budgets – before it is spent rather than retrospectively.
Supplier Performance on each transaction can be accurately measured.
Invoices can be Paid to terms – improving credit ratings and preserving cash flow.
Admin costs are reduced significantly as Automated PO to Invoice matching is introduced.
Cost savings and cost control is the underlying theme here.
And beyond this real and tangible benefit is a very important organisation development issue. Tackling day to day buying activity within an overall Procurement framework is a prerequisite to achieving full value for money from 3rd party Supplier relationships.