Payments

Purchase-to-Pay Automation: Bridging the Gap Between Finance & Procurement

Palette SoftwareBusiness Development Manager - UK

Purchase-to-pay solutions are widely recognized 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 purchase-to-pay solutions. As such, purchase-to-pay allows a business to move quickly and achieve organizational goals, connecting purchasing to finance, and realize order-to-payment processing.

However, despite purchase-to-pay’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 purchase-to-pay processes from different perspectives, making it difficult for organizations to know what to measure, leading to businesses failing have a single version of the truth. But purchase-to-pay 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?

Bridging the gap between finance and procurement leads to 3X higher return on supply management assets

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 businesses 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 through innovation. Such businesses are more likely to realize the savings, ease contract negotiations, and create opportunities to gain financial benefit for the enterprise.

How finance and procurement can work together

Transparency and visibility

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 an organization to assess the impact purchase-to-pay has on its business processes, its strengths, and where it could be utilized better. Good visibility across purchase-to-pay 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 purchase-to-pay solution that provides a single dashboard of all the processes that it is handling on both the finance and procurement side. Additionally, a purchase-to-pay solution that automatically records and reports on the organization’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.

Common, measurable KPIs

With this collaboration enabling visibility in place, it is critical that businesses begin measuring their purchase-to-pay solutions in order to maximize their ROI. Again, visibility is the key, as it makes it possible to set meaningful and measurable KPIs. The key to this is to avoid measuring everything and to 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:

  1. Measure their invoice to purchase order ratio, which will help ensure that spend is kept under control.

  2. Analyze the percentage of invoices and POs that are fully automated, with zero-touch, as this will help improve their cost per invoice.

  3. Set a KPI around payment on time as this provides a good measure of how effective purchase-to-pay is.

Putting things into action

Once departments are collaborating and effective goals are set, the purchase-to-pay 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 purchase-to-pay solution can free up key staff to an implement innovative strategy to achieve high-level goals, monitor performance, and amend strategy accordingly.

Most businesses lack the right tools

Without an effective purchase-to-pay solution, organizations will be increasingly battling to get urgent purchase orders out, reconcile mismatches, and police “good” behavior. 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 purchase-to-pay 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.

Douglas Embleton

Palette SoftwareBusiness Development Manager - UK

Douglas Embleton is UK Business Development Manager at Palette Software. He has 25 years of 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.

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