Addressing the Finance Procurement Communication Gap
Purchase-to-pay (P2P) solutions are now widely recognised as an essential component of organizations’ finance and procurement departments. Businesses have enjoyed benefits including cost savings, increased accuracy, enhanced audit trails and 60% productivity gains with automated workflows for invoice matching and exception handling, all as a result of P2P solutions. As such, P2P allows a business to move quickly achieve organisational goals, connecting Purchasing to Finance and realise order to payment processing.
However, despite P2P’s well established place in organizations’ finance processes, its performance is very rarely monitored or measured. This is because finance and procurement teams inherently approach P2P processes from different perspectives, making it difficult for organisations to know what to measure, leading to businesses failing have a single version of the truth. But P2P solutions can be leveraged to bridge this gap, set joint goals and measure against them to help the entire organization achieve its aspirations. So how can this be achieved?
To start with it requires strategic collaboration between finance and procurement departments. When finance and procurement professionals have a profound understanding of both sides of the business, they can set specifications that will help secure value and process efficiency for the overall benefit of the business.
Despite this, currently only 54% of business say their CPOs and CFOs work together, with many saying this partnership could be much closer and more effective. According to one study, 46% of organizations have yet to see full engagement between department leaders. In fact, 33% say their CFOs only ‘partially’ help in refining procurement policies.
However CFOs and CPOs that work closely together enjoy nearly three times higher return on supply management assets, and are seven times more likely to experience a high impact from innovation. As such businesses are more likely to realise the savings, ease contract negotiations and create opportunities to gain financial benefit for the enterprise.
So what’s preventing finance and procurement teams from working more closely together?
See it to believe it
At the heart of this issue is the lack of visibility many organizations have across their entire purchase to pay infrastructure, which hampers finance and procurement teams seeing, and understanding, what their colleagues are facing. Furthermore, without visibility and measurement in place, it is impossible for organizations to assess the impact P2P is having on their business processes, its strengths and where it could be utilized better. Good visibility across P2P processes helps the finance and procurement departments to obtain a single version of the truth, set clear appropriate KPIs and start measuring performance effectively.
The process begins by utilizing a P2P solution that provides a single dashboard of all the processes that it is handling on both the finance and procurement side. Additionally, a P2P solution that automatically records and reports on the organisation’s purchasing habits helps finance and procurement professionals to build strategic plans. This helps finance to inform procurement on whether savings secured translate to a rise in profit and contribute to high-level business goals.
With this collaboration enabling visibility in place, it is critical that businesses begin measuring its P2P solution in order to maximize their return on investment. Again visibility is the key, as it makes it possible to set meaningful and measurable KPIs. The key to this is avoiding trying to measure everything and hone in on the high-level goals that are most meaningful to the business.
Organizations should begin with just three KPIs as a starting point. To set these, they should first measure their invoice to purchase order ratio, which will help ensure that spend is kept under control. Secondly, they should analyze the percentage of invoices and POs that are fully automated, with zero touch, as this will help improve their cost per invoice. Finally, they should set a KPI around payment on time as this provides a good measure of how effective P2P is.
Putting it into practice
Once departments are collaborating and effective goals are set, P2P software can help to ensure that they come to fruition. Firstly, offering a single access point automatically ensures compliance with policies set between finance and procurement. Second, offering one standard way of ordering goods and services ensures that all employees follow the correct ordering process and only purchase from approved suppliers that will offer the best value for the business.
By streamlining the finance and procurement processes and making workflows more efficient, the right P2P solution can free up key staff to implement innovative strategy to achieve high-level goals, monitor performance and amend strategy accordingly.
Most lack the tools to succeed
Without an effective P2P solution, organizations will be increasingly battling to get urgent purchase orders out, reconcile mismatches, and police good behaviour. In that environment it can be difficult to take a step back and understand whether you are doing things right, or even whether you are doing the right things. It’s important to invest in solutions and resources to be able to take time out and measure these things.
By introducing an effective P2P platform that provides a standard way of ordering from suppliers and automatically records information uniformly, finance and procurement can control costs and gain continuous insight into their ongoing goals – while also enabling finance and procurement teams to work more closely together on strategic goals.
To learn more about how P2P solutions can be leveraged to help the entire organization achieve its core aspirations, you can view PurchasingInsight’s webinar supported by Palette and Canon on the subject here.
Palette Software offers solutions for management of financial processes from procurement to payment. The product suite PaletteArena connects and matches purchase orders, invoices and contracts, providing customers with an automated solution with significant, measurable cost savings and efficiency gains. Palette Software was founded in 1993 in Sweden and has sales offices in Europe and the United States and partners worldwide. Palette has over 3 500 customers in 50 countries.
Douglas Embleton is UK Business Development Manager at Palette Software. He is a highly skilled specialist with 25 years’ board level experience, advising strategy on Finance, Purchase to Payment, Accounts Payable, and related Enterprise Resource Planning, business and financial processes. Previously, Douglas has held senior business development positions for companies such as Canon, Invu, ISC and sat on the business partners advisory panels at Sap and Microsoft.