Accurate procurement means easier invoicing
Procurement, Accounts Payable Automation
It’s no secret that the invoice handling process in best-in-class organizations operates like clockwork. But just how do they achieve this? It all starts with excellence in procurement – particularly when it comes to indirect spend.
In an analysis conducted by OpusCapita, we identified that companies marked as best-in-class manage their purchase invoices up to 2.5 times faster and operate their accounts payable department at 60% lower cost than the average. While there is certainly more than one reason for this, a common denominator is that these companies have closely aligned the operations of their accounts payable department with those of their procurement function.
While your company may also appear to be well aligned in this manner, it’s necessary to ensure that cooperation between the finance and sourcing departments is not limited just to the purchase of direct material. Most companies have fairly good processes around and knowledge of their most important direct spend categories and suppliers. PO-based purchases for direct material often feature good qualitative order data, as these requests originate with small groups of professional purchasers whose job it is to ensure a continuous supply of material into their company’s production process. This type of purchase is also supported by integrated business scenarios such as Electronic Data Interchange (EDI), where the data quality is typically very high.
It’s often a different story though when it comes to indirect spend…
Managing off-catalog spend
With indirect spend you generally have a larger and more fragmented group of non-professional buyers making the purchases, which are typically of a lower monetary value than direct material. It’s easy to see why this can quickly become a messy picture, with thousands of small purchases (often at inflated, un-negotiated prices) spread across different geographies and subsidiaries. This so-called “maverick spend” in turn leads to a spike in exceptions when it comes to handling invoices – wreaking havoc with the efficiency of your accounts payable department
So how do best-in-class companies deal with this?
One way is simply to be very strict! What this means in the most practical of terms is to introduce a “No PO, No Pay” policy. This is of course quite a serious step though, and one that can breed discontent if not handled correctly. Enforcing a strict PO policy without teaching end users why is not a good idea, so there are a few recommended steps to follow.
Guided buying behavior
First, pick the largest indirect spend categories, as of course a little effort here can go a long way. Mobile phone purchases are typically a popular place to start. Then, agree with your suppliers to actually include – as searchable items – pictures of the specific models of popular mobile phones that your purchasing rules do not allow. These searchable items should be accompanied by the information saying that they’re not available for purchase (and possibly also an explanation as to why), and guiding the user in an alternative purchase direction.
While this approach may seem counterintuitive, our experience suggests that this guided buying behavior lead to fewer purchases of off catalog items and overall more compliant purchasing. This in turn translates directly into easier invoicing, and before you know it you’re also being benchmarked as best-in-class!
Tobias Wikström has more than 15 years’ experience in purchase-to-pay and cash management operations. He has supported hundreds of customers in their strategic alignment initiatives through invoice automation, supply chain and cash flow automation projects – gaining valuable cross-vertical knowledge in the process.
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