Procure To Pay Best Practices

When costs come under the microscope, companies look to more creative cost-saving solutions. The traditional options - streamlining operations and boosting efficiency - are reliable, but they can only be enhanced by looking at a company's purchasing patterns. To profile a company's procurement and accounts payable divisions is an excellent way to better managing the finances of a company, enabling executives to check the pulse of their organization's economic health.

Procurement looks at the spending plans and commitments of an organization. Accounts Payable provides on the implementation of an organization's spending plan. Procure-to-pay takes these insights one step further, in providing automation to the analysis of these crucial areas of cost tracking and cost containment. Merely articulating and executing policies is no longer going to provide the kinds of overall operational efficiencies that many companies are seeking to increase their competitive edge. By automating procurement and accounts policies, they can better enforce them, penetrate the depths of organizational spending patterns, including cash flow and working capital.
The following best practices are offered to help achieve greater cost savings and efficiencies in procure-to-pay.

1. Go for the mavericks.
These are the buyers who like to color outside the lines. Instead of making their purchases through normal channels, they tend to make indirect purchases outside of the system. Though they may have good intentions, they compromise operational efficiency by making it impossible to view or control their spending patterns. Implementing a user-friendly purchasing system that encourages widespread adoption, is one way to circumvent this problem.
If you think your organization is too big for this, consider Helsinki. The city of Helsinki's e-procurement system enables over 7,000 users and 50 professional buyers coming from 30 different divisions to manage hundreds of thousands of purchasing transactions each year and achieve a matching rate of over 80 percent (1). Complex bookkeeping standards, general ledger rules, organizational business rules and policies are all automated.

2. Run reports unearth hidden cost-savings.
Spend analytics can help realize significant savings by: 1) realizing volume and early-pay discounts, 2) optimizing contract terms, and, 3) eliminating redundant payments and/or costly late payment fees.

3. Be honest about strategic purchases.
Selecting suppliers based on cost won't cut it for strategic purchases. In areas such as research and development, companies have to take into consideration the overall value that suppliers provide, and invest in appropriate technologies to support those relationships.

4. Gain efficiencies and improve processes.
How can you streamline operations? Are there tools to make process improvements that you haven't instituted yet? Using key performance indicators (KPIs) are a tool for cutting costs by better analysis and monitoring of purchasing patterns, in that they look at how current performance measures up against targets, which can shed light on the improvement opportunities in purchasing departments.

5. The "Big Picture" of procure-to-pay.
How good are things with your vendors? Likely not too hot, if AP continually pays them late because of invoice processing delays. Automating the procure-to-pay system, from need identification, through budgeting and planning, all the way up to procurement and payment, can avoid the sort of damaging and inefficient patterns that ripple out when these issues are not properly addressed in a systematic manner (2). This high-level, financial supply chain visibility is essential to improving overall operational efficiency.

6. Don't settle: find a solution that provides immediate cost savings and benefits.
Rather than long-term re-engineering projects that offer ROI at some indeterminate future point, technology that can back up claims of ROI within a matter of months, is a more prudent option.
Sources:
1. Ari Salonen, "Six Best Practices for Procure-to-pay in a Recession," Supply & Demand Chain Executive, http://www.sdcexec.com/article/10269431/six-best-practices-for-procure-to-pay-in-a-recession.
2. "Procure-to-Pay Process Management in SAP," Dolphin Corp., http://www.dolphin-corp.com/business-process-management/procure-to-pay.

James Hadley is an IT consultant for many small to mid-size businesses. He lives in San Francisco with his wife and two sons.

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