Companies looking to transform their procurement functions should orient employees and suppliers toward digitized procure-to-pay processes
They should focus on making these processes leaner by strategically minimizing non-value add activities to fasten payment closures
Digitization through automation and advanced analytics can help drive governance, eliminate manual efforts and prevent leakages in procurement
Achieving 100 percent paid-on-time performance remains elusive for most procurement functions even today. Despite significant investments in technology adoption and process digitization, companies find that manual, non-value adding processes persist due to exceptions, country-specific processes or errors. Collectively, these small constraints impede the transformed Procure-to-Pay (P2P) process from realizing the targeted benefits or improvements.
There are a few common loopholes that companies face when transforming their P2P function. While a few of these issues relate to onboarding people (employees and suppliers), some are process related, while others are related to decisions made during the transition to new technologies and solutions. In this context, there are certain best practices for the people, process and technology levers that companies can adopt in a digital P2P function.
Complete digitization of transactions and data should be a high priority goal in the transformation process. Employees should be oriented to the digitized P2P process, their responsibilities as well as the impact of their actions. For example, they should be trained on how to buy specific goods and services, the disadvantages of paper-based transactions, the impact of payment-term regulations on sourcing and supplier management processes, and establishing governance for continuous change management.
Onboarding suppliers to the digital platform is another critical aspect of the transformation. Ensuring correct and updated supplier information on the platform, training them in digital invoicing and the use of the self-service portal are important elements. Deploying a global process ownership model across functions with P2P as an independent function will ensure governance of policies and processes.
Finally, ongoing governance to identify problems, including goods and services received late, invoices sent to the wrong location, and late receipting or approval, is important. Consequences should be defined for failure to comply with contract terms to motivate behavioral change.
The objective from a process point of view should be to enable lean processes with minimized non-value adding activities. These include: duplicate or manual effort, effort related to paper-based or physical information, long waiting periods between approvals, high ratio of work-in-progress or incomplete transactions, and errors.
Some best practices from a process point of view are:
Ensuring suppliers update their product catalogs on the digital platform with products mapped to categories and pre-defined prices so that requests can automatically be converted to purchase orders
Enabling centralized invoice visibility and control; invoices that are not uploaded to the platform should be mailed to a single location (PO Box) or e-mail address. A mailroom should be considered for receiving goods and services to avoid time lapse
Transferring funds electronically to pay the supplier and saving on costs
Reviewing the tax modules of Enterprise Resource Platform (ERP) systems to ensure that they are aligned to regulatory and compliance norms. If the pre-built ERP tax modules are deployed for use, country-specific tax regulations should be uploaded to avoid omissions and errors
Configuring regulatory requirements such as remittance indicators and tax codes into the ERP design, and having the required data fields to capture accurate and timely payments of receipts
Confirming consistent definition of on-time payments between contracts and systems. Sometimes, contracts specify payment terms based on date of receipt of invoice, whereas systems calculate the terms from invoice date
Instituting early payment discounts as per the contract or dynamic discounting in accordance with the volumes of transactions
Capturing the nuances of local processes to reduce manual interventions through robust due diligence
P2P functions can leverage various levels of technology benefits based on the maturity of their processes and users’ adoption of digital solutions.
Benefits can be realized in the early stages by ensuring the digitization of information flowing through the process. For example, the supplier onboarding process should include capturing or digitizing the vetted contractual terms or agreement. This helps monitor vendor key performance indicators as well as control non-standard payment terms.
Digitization can also help in effective end-to-end reporting to drive governance, eliminate manual efforts and curb leakages. Automation and advanced analytics can be deployed once most procurement transactions are digitized and streamlined. Advanced analytics can help procurement managers predict demand with greater accuracy, negotiate better contract rates through tail spend management.
With most organizations striving to achieve even a 70-80 percent on-time payment rate today, it is a clear call for them to identify and address the persistent process and technology gaps that are holding the function back. Businesses should first baseline their P2P maturity level before they can benefit from the next wave of technological innovations such as blockchain and artificial intelligence.
Join the conversation
Finance and Accounting
23 March 2023
18 August 2023
10 August 2023