3 areas of improvement for the procure to pay process
Strategic spending increases an organization’s profitability and makes budgets last much longer. But how do you transform from no organized procure to pay process to a full-fledged money-saver?
The biggest hurdle for any efficient procure to pay process is effective cooperation between departments. Instead of independent islands within the organization, the collaboration of people, processes, and technology are fundamental to an adequate procure to pay process. And yet, a lot of organizations don’t address this vital process as a whole, but as separate actions. They fail to use procurement as an opportunity.
Faulty processes are often caused by poor IT systems, lack of internal communication or poor supplier relationship. While a functioning procure to pay process has a positive effect on procurement, saves time, and supplier relations.
It’s not impossible to improve this operational process, and many organizations manage to generate drastic results. Below we offer a couple of obvious solutions that any organization can implement.
One of the finance department’s concerns is the right allocation of money. A buyer generally has no knowledge of accounting rules, but if he uses wrong ledger codes for a purchase order, it directly affects the visibility of the money. That’s why buyers are advised to always involve their finance department in the purchase process. Together they can prevent unintentional mistakes and increase the organization’s buying performance.
The relationship between a supplier and an organization can be bumpy at times. Buyers can easily blame the finance administration, but it may eventually escalate to the level that products are no longer delivered. However, the real reason for late payments is often more complex and may have different reasons. It is therefore important that the finance administration also maintains a relationship with the supplier so that any late payment can be communicated promptly. It can prevent a commercial fiasco.
Oftentimes goods are received before an invoice. A nightmare for the finance administration if this is not properly documented. The finance department must reserve the proper amount for the payment of these goods. If this happens on a large scale it can affect the profitability of an organization. A pro-active, solution-oriented approach can prevent a disaster. This goes further than collaboration, it is the proper management of everyone’s own domain and connecting the data and different processes in a clear and cohesive way.
The above are just a few examples why collaboration between buyers and the finance administration is important for an effective procure to pay process. The key is working together; To gain insight into the buyer’s administration, to create empathic relations with suppliers, and to introduce solutions and keep trouble at bay.
One last advice: Start today. The benefits greatly outweigh the resources that it costs to initiate a proper procure to pay solution.
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