Any organisation that processes a reasonably significant number of invoices, should have clear policies and processes in place. Whether the invoices are incoming for payment, or outgoing after work has been completed, it is vital that any organisation has procedures and systems which minimise bureaucracy, error, risk, and time taken.
So what are the warning signs?
Well, they are many and varied – but they can be summed up as ‘proactive vs. reactive’. It is easy to fall into the trap of processing invoices as and when they are received. It is more efficient – in terms of both time and cash flow – to work to a ‘Pay by Terms’ model, when invoices are saved up and paid on the due date. Paying ad-hoc is inefficient; it will take longer and potentially allow cash – that could be earning interest – out of your account sooner than it needs to go.
Other things to look out for include:
- Spend is led away from preferred suppliers
- Lots of new suppliers regularly added
- Duplicate payments experienced
- Retrospective orders to cover invoices received
- Payments made under duress, without adequate internal approval
- Petty cash and expenses are used in lieu of preferred ordering channels
Perhaps now is the time to do something about it?
This kind of thinking is no longer only the territory of large companies. More and more small and medium sized organisations are getting to grips with procurement and payment strategies as the global market and growing uncertainty take their toll on the profit margin. When driving additional sales in new markets becomes both difficult and costly, lowering cost base is the logical place to look.
The market has changed, with new players offering affordable, tailored services for clients of all sizes. Shared service capabilities have been developed, allowing organisations to benefit from scale and a standardised approach. Implementation has become simpler, as software and service costs continue to drop. A proper planned implementation should take advantage of the opportunity to migrate existing spending to a reliable and stable new process and platform, reducing waste and maverick spending.
The benefits of a Procure to Pay Business Process
Perhaps the obvious benefits are increased in sustaining the benefits achieved through good buying practice. Visibility and swifter issue resolution are also big ticket items. Each of the issues highlighted above can similarly be dealt with in turn. A requirement to pre-approve invoices will eliminate retrospective orders. By Channelling spending toward Preferred Suppliers, organisations benefit from negotiated cost reductions, spending less in a structured way, instead of spending more haphazardly.
Accurate matching of Purchase Orders and Invoices allows organisations to quickly identify erroneous or duplicate invoices, minimising the time usually spent resolving these issues. Invoices paid to term are financially efficient and minimise chasing from suppliers seeking payment. And increased visibility of the suppliers’ performances brings to light issues and allows for ongoing proactive management of cost, service and value.
A clear business process and clear systems, from initial procurement to final payment can bring efficiencies and open opportunities. It gives you the ability to have a more proactive way to manage your suppliers and your profit margin.
So what now?
So sure, it all makes complete sense, but for many organisations a clear P2P process is also not the reality yet. And it’s true that organisations have other priorities and finding the time to commit to such a piece of work can be difficult.
At the moment though, not proactively managing your cost base to maximum effect could be costly. If your competitors are doing it and you’re not, they may be able to reduce their price, undercutting you in the market place, reducing your sales and further damaging your finances. From there, it can be a long road back. Ensuring your internal processes – and your ongoing supplier management – are on point, can go a long way to making sure that you’re the most competitive company in your space.
For more information, contact us.
Article by: Barry Donovan