One common pitfall for growing businesses is a lack of focus on financials. Marketing strategies and product development are undoubtedly exciting. Still, more often than not, it’s the diligent work of finance and accounting teams that keeps the business on track and moving full steam ahead. 

If you’ve gotten by so far without financial forecasting, you may ask, “What’s the worst that can happen?”

The answer is “a lot” — and potentially at the worst moment. Absent or incomplete financial statements and forecasting can cause cash flow disruptions, inventory shortfalls, slow disaster recovery, reduced valuations, and problems obtaining credit. 

Solid forecasting doesn’t have to be elaborate, but it should be consistent, comprehensive, and data-driven. Today, we’re covering some basics of financial forecasting and budgeting and sharing ways to improve your financial reporting. 

With the right approach, you can move toward stronger financial positions and smoother operations through the inevitable peaks and valleys of running a business.

By the end of this article, you’ll know:

•    What financial forecasting is and how it works
•    The benefits of strong, consistent forecasting and budgeting
•    How technology can boost financial forecasting.

First, let’s define forecasting and budgeting a little better. 

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What is financial forecasting?

Financial forecasting is the process of using past financial data and current market trends to make educated assumptions for future periods. It is an important part of the business planning process and helps inform decision-making.

Effective forecasting relies on pairing quantitative insight with creative evaluation. Taking what you know and what you believe could happen near term, you can plan for what comes next. 

Forecasting factors in expected events such as predictable economic changes or business expansions. It also attempts to establish contingency plans for unforeseen events such as stock market corrections, natural disasters, or long- or short-term business disruptions. 

While forecasting cannot predict or avoid every pitfall — for instance, a global pandemic — it can ease the impact of outlier events and create opportunities for growth during advantageous periods. 

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Forecasting vs. budgeting

There are different financial forecasting models, each with distinct features and potential benefits. (It’s important to note that what many people call forecasting is actually budgeting.) 

Every business is unique and will benefit from different types of forecasting models. In general, businesses operate using either:

1. A traditional, static budget that forecasts expected revenue and expenses in a single time period — typically 12 months. In this approach, the projected revenue and expenses are amended over the current period, but the time horizon remains fixed. Amendments during the forecast period happen in smaller increments as your approach period end. This forecasting process is sometimes called forecasting “to the wall.”
2. Rolling forecasts take a dynamic approach to financial planning. Instead of making budget allocations and setting goals once per year, forecasting is conducted over shorter periods (often quarterly) and reviewed during each period for potential adjustments. Planning is continually added to the end of the forecast horizon. This dynamic approach to forecasting allows companies to engage in a less-intensive yet consistent forecasting and budgeting process. It is especially helpful for handling higher-variability scenarios such as fluctuating inventory and seasonal cash flow.

Why is financial forecasting important?

Forecasting is the basis of every financial decision your company will make in a given time period. Strong financial forecasting practices tend to lead to better financial outcomes, more stable cash flow, and better access to the credit and investment that can help your business grow. 

With a forecast in place, department heads can more effectively plan spending for their teams. Procurement and supply chain teams can plan capacity, manufacturing, and distribution. Sales and marketing professionals can develop metrics and reasonable sales targets based on the information analysis

Forecasting also serves as an important barometer for the overall health of your financial organization. As the fiscal year progresses, having well-documented forecasting can illustrate the effectiveness of current revenue-generating strategies, contextualize current performance, evaluate the market’s effect on your financials, and help identify and correct areas of misalignment. 

Forecasting serves your business decisions by: 

• Providing the basis for budgeting: As we said before, forecasting and budgeting are often used interchangeably. But in reality, they are two separate processes with different goals. Forecasting is the first step of overall financial planning. It considers known data and uses that to predict and influence future, unknown events. 
• Creating necessary accountability: Having a documented plan also creates benchmarks for evaluating the progress toward your financial goals. As Peter Drucker famously pointed out, “What gets measured, gets managed." Successful spend management is one of the most important ways to ensure stable financial performance over time. 
• Informing strategic decisions: With access to data and a well-reasoned future plan, stakeholders can make better decisions about the strategies and investments they make. Forecasting is the way to ensure that decisions are made based on accurate historical data and properly modeled future potential.
• Improving risk evaluations: Part of financial forecasting includes finding ways to mitigate unforeseen circumstances and create contingency plans for outlier scenarios. While you can never fully mitigate risk, imaginative scenario-building can reduce liability and improve recovery from unforeseen financial events.
• Facilitating planned, consistent growth: Successful growth shouldn’t be left to chance. Forecasting models grounded in solid data and assumptions can offer insights to create cost-cutting and growth opportunities. This can help you optimize spending, so more of your dollars go into revenue-generating activities.

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Basic elements of financial reporting

The basis of your financial forecasting and reporting efforts will come from the three financial statements: the Balance Sheet, the Income statement, and the Cash Flow statement. These pro forma documents interconnect to reveal a holistic view of your company’s financial life. 

1. Income statement: Shows business performance across periods. The Income statement reflects vital signs like revenue, cost of goods sold (COGS), gross profit, expenses, pre-tax earnings, and net earnings.
2. Balance Sheet: This is a report of the assets, liabilities, and equity over the preceding forecasting period. It is a point-in-time financial snapshot of the company.
3. Cash Flow Statement: This shows the cash movements in your business. The purpose of this statement is to show the net change (increase or decrease) in cash balance over each period. 

Five areas to review in financial modeling

When constructing any type of financial forecast, there are certain factors you’ll want to include in your reporting. Some, like past financial data, are concrete and easily contextualized. Others rely on advanced expertise to successfully identify and model outcomes. 

Five of the most important factors in a forecasting exercise are:

• Historical data: Past financial performance is the cornerstone of forecasting. Examining your financials through previous forecasting periods will surface growth opportunities. This data is your most accurate starting point for making future projections. 
• Forward-looking projections: Depending on your business and reporting method, your time horizon may vary from a year to two years. These projections should attempt to predict future revenue goals, new business opportunities, and other positive impacts.
• Expense and cash flow forecasting: Your forecast should attempt to evaluate expected expenses based on current company objectives, adjusted for consequences like inflation and increased goods and services costs. The better your procurement data, the more accurately you can forecast these expenses.
• Best/worst-case scenario planning: Financial modeling is not just about statistical analysis, but creative thinking. Therefore, thorough forecasting should explore different scenarios and outlier events. This includes adverse events — such as fires, location closures, cyber attacks, and natural disasters — and positive events such as higher-than-expected revenue, investment returns, etc.
• Risk analysis: Part of your contingency planning should consider liability caused by internal and external forces. While contingency planning for outside risk sources is essential, it’s also necessary to plan for internal risk factors such as employee malfeasance, lawsuits, and crisis events.

How technology improves financial forecasting and budgeting

Understanding the impact your variable costs have on expected revenue is the best step in creating more accurate forecasts for your company. 

The right software can make forecasting easier by helping you visualize expenses over time. This makes it easy to see where you’re spending your money, in order to predict future spending and unforeseen circumstances. 

1. Procurement often represents the lion’s share of company expenses. Using an automated procurement tool can help organizations to find cost-savings opportunities within their current purchasing process. By centralizing your data and viewing results in real-time, you will gain granular spend visibility and context for expenses. This level of detail makes projecting future expenses easier. 
2. These technology tools also help users streamline vendor and supply choices to reduce spending. Using curation in your purchasing saves money in the short term while stabilizing monthly invoices and creating a more consistent view of expenditures. 
3. Processing invoices and payments can be time-consuming. By using a tool with Integrated payments systems, stakeholders can get what they need, and accounting can buy and pay for it faster. Using a procurement software tool, users can automate invoicing to avoid penalties and realize early payment discounts. Improving your budget efficiency leaves more room in the budget for revenue-generating activities and strategies.

Using a procurement tool like Order.co, you can harness the power of data you already produce every day. Doing so can significantly improve the accuracy and effectiveness of your financial forecasting.

If your organization is ready to improve financial forecasting through better procurement management practices, schedule a demo of Order.co.

Picture your accounting department at the end of every month — is it calm or chaotic?

If your staff is scrambling and cash reconciliation is always a nail-biter, your AP workflow may be broken. Accounts payable automation is the best way to avoid month-end madness and bring visibility and efficiency to accounting processes.

Automated AP workflows allow you to see issues in advance and access information that drives good decision-making. You can scale your department without increasing headcount, eliminate errors by reducing manual tasks, and accelerate your financial operations, approvals, and payable processes.

But what does an automated process look like, and can technology ensure you pay the right vendors on time without issues or delays?

To help you understand AP workflow automation, this article addresses the following questions:

• What is accounts payable automation?
• How does AP workflow software work?
• What are the benefits of automating AP workflows? 

What is AP workflow automation?

AP workflow automation uses technology to process your accounts payable activities, such as invoice coding, invoice matching, vendor payments, and month-end reconciliation.

A smooth accounts payable process ensures you stay on top of your debts by paying the right vendors at the right time. AP automation software streamlines your invoice management, payment process, approval workflow, accounting process, and procurement operations. 

Traditional versus automated AP workflows

In a traditional AP workflow, your accounts payable department handles various business operations by manually processing all steps from intake to payment. There is no continuous flow of information or centralized AP data source for visibility, verification, and auditing. 

Manual processing through traditional AP is slow — the average AP clerk can process about five invoices per hour. Human data entry also increases the occurrence of errors. The manual invoice exception rate averages around 23%. 

These issues result in late payments, missed payments, or even duplicate payments. This creates a continual backlog of payments and data, which makes it difficult for Finance to report accurate financials or plan future budgets. It’s expensive, too — profit margins decrease due to fees and increased hours. 

An AP automation software solution provides a single platform for your AP department and the rest of the organization. All supplier and vendor information is automatically collected. When invoices are transmitted, AI algorithms match them to the purchase order, detect and flag mistakes, and code the invoices for processing. 

The system also automatically routes payments to the correct approvers and provides access to bank accounts for fast payment processing. Automatic payment scheduling avoids cash flow deficits and ensures early payments. All taxation and payment details are stored for compliant documentation and easy auditing. 

In essence, AP automation provides Finance with all the information it needs to compile accurate and timely financial statements.

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The benefits of AP workflow automation

AP workflow automation takes the stress out of processing invoices and lets your AP team focus on higher-level projects that drive value. It also offers various other benefits, such as error handling, risk reduction, vendor management improvements, and better profitability.

Preventing overpayment

A traditional AP workflow is complicated and lacks automated checks that prevent overpayment. Without checks for invoice duplicates, supplier changes, or purchase order details, your AP department may overpay its vendors, resulting in losses. This disrupts critical cash flow necessary for business expansion and timely payments (which are essential to retaining vendor relationships). 

Software is the solution that introduces e-invoicing and digital purchase orders, all available on a single platform. With fewer paper invoices and manual processes, your AP department has increased visibility, accuracy, and control.

Improving your business’s credit score

Early payments and positive cash ratios indicate your business is capable of handling its finances and is likely to repay future debts. Both vendors and financial institutions look to your financial reporting when extending credit and continuing business relationships. 

A streamlined payment process reduces late payments, which boosts your creditworthiness. When it’s time to change suppliers, request credit, or ask for a business loan, a good credit score helps you access the necessary credit at lower interest rates.

Creating positive vendor relationships

Your business relies on suppliers to process purchase orders and deliver goods promptly in the agreed volume and condition. Vendors may be less willing to deliver if you pay late or have outstanding debts — and could terminate business altogether. Early payments motivate vendors and encourage discounts. 

Automated AP systems help you track all your invoices, as well as schedule and approve payments on one interface. You can check if you’re paying for goods supplied as ordered or withhold payment if necessary. 

Reducing financial fraud

AP fraud schemes are challenging to detect if you don’t have adequate data and don’t know what to look for. In the 2020 AFP Payments Fraud & Control Survey, 81% of companies admitted that they were AP fraud targets. Even large companies such as Google and Facebook have fallen victim to AP fraud scams and paid millions to individuals. 

Fraud happens through false billing, fraudulent checks, overpayments, and wrongful manual data entry. Automating your AP tasks helps you fight AP fraud at various levels, with processes such as: 

• Setting budgets and administering approvals through automatically routed invoice processes 
• Automated invoicing through artificial intelligence (AI) and machine learning (ML) to capture and match invoices to purchase orders
• Electronic audit trails for your accounting team and external auditors

Creating better audits

Audits are never pleasant, but they can be easier with a reliable AP platform and accurate data. With fully-featured electronic AP systems, auditors track invoice data to the proper purchase orders, approvers, and payments.

You avoid bottlenecks caused by manual data entry and lengthy paperwork reviews. With accounts payable automation, everyone benefits, including the procurement team, accounting teams, approvers, auditors, and the CFO. 

Ensuring better profitability

When your AP workflow is automated, you eliminate fees and control your overhead costs, which boosts your overall profit. An automated system requires fewer AP staff to manage the process, which reduces your hiring costs while scaling your operations. 

How automated AP workflow works

Your AP workflow is one of the most important business processes you’ll implement for keeping purchasing and invoicing on track.

Here are the basic steps of accounts payable workflow automation:

1. Order submission: Accounts payable receives an approved purchase order created during the larger procurement process. After a Finance review, AP transmits the purchase order to the vendor for fulfillment. AP enters the information into their centralized vendor information database to begin the invoice automation process. 
2. Processing and fulfillment: The vendor processes the order and submits an invoice to AP. Electronic invoices are automatically routed to the system. This can happen directly within an automated platform, electronically through an email address, or by capturing a paper invoice with optical character recognition (OCR) technology. The system codes the payment automatically for entry into the general ledger (GL).
3. Three-way matching: The system checks the invoice, purchase order, and receiving information to ensure they match. In an automated workflow process, this process happens automatically without human data input or interaction. 
4. Invoice reconciliation: Once the matching process is complete, the system reconciles the invoice and sets it up for payment. Vendor payment is submitted through an electronic invoices payment workflow according to the payment terms outlined in the invoice. 
5. Vendor payment: Payment information is recorded in the accounting system and (if integrated) into ERP systems. Finance teams have full visibility into the transaction. 

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Best practices for AP Workflow

Use these best practices in your current workflow to increase your efficiency and results.

Implement spend analysis

With full data visibility, Finance is empowered to identify spending patterns and use them to your advantage. Spend analysis can identify spending patterns by department, role, category, or location. This information can be used to adjust budgets, bring excess spending under control, and identify issues or potential problems in the company’s finances.

Establish a checks and balances system 

Manual tasks and paper invoices reduce your audit trail efficiency and open your business to accounts payable fraud. AP automation software enables three-way matching from invoice, payment, and reconciliation. You can easily monitor and track the cash flow to check for suspicious behavior, whether alone or with an audit team. 

Accounts payable software also creates automatic routing to the right approvers after integrating with your ERP. You can track each invoice and purchase order to the approver during audits. What’s more, you can separate those who write and approve checks to monitor their approvals. Lastly, you can suspend, authorize, or delay payments depending on your budget and demand. 

Increase cost savings

AP automation eliminates redundant work, such as invoice matching, payment processing, and checking for duplicates, which optimizes your AP staff’s workflow. By removing these manual processes, your team can spend time on higher-value work, such as improving future contracts and benchmarking costs to realize savings.

FAQ on AP workflow automation with Order.co

Accounting and Finance often have questions about automating their workflow process. Here are some answers to common questions: 

How do stakeholders submit requests? The AP intake system is different for every company. Some companies choose an email or web-form intake process. Others use procurement software to fully automate the purchasing process. With a platform like Order.co, stakeholders purchase goods through their own vendors or a network of 15,000+ pre-approved vendors. 

What happens if vendors send multiple invoices? All invoices are entered into the system with all identifying information in appropriate fields. This means a vendor file contains all the necessary information to process the payment. Individual vendor invoices are identified by their invoice number. Duplicate invoices are automatically detected to avoid duplicate payments. 

What if there’s an issue with an invoice? Suppose the system detects problems with an invoice, such as incorrect or incomplete information, unusual activity, or duplication issues. In that case, the AP team receives a notification to review the information and remedy the problem. These types of issues are drastically reduced using an automated electronic system.

Is AP automation worth the money? The cost savings in employee time, wages, and vendor fees, paired with the potential for discounts from those vendors, give you net savings when you invest in an AP workflow automation tool. 

Automate your AP workflow with Order.co

The time is right to reap the benefits of a fully automated purchasing and AP workflow. With Order.co, buyers get access to the goods and supplies necessary while AP supports impactful business goals (instead of just processing invoices). 

Order.co has all the features needed to automate and digitize your AP workflows: 

• Centralized purchasing for stakeholders
• Automatic line-level GL coding for purchases
• Three-way matching capabilities for processed orders 
• Electronic payment of approved invoices
• Integration and exporting for better data visibility

To learn more about automating your AP workflow for greater efficiency and savings, check out the Finance Automation Guide. It provides in-depth information about centralizing your AP payment process, increasing visibility, and maximizing the savings potential of your accounting process.

Procurement seems pretty straightforward: A company needs something, and the procurement department figures out where and how to buy it. The difference between surviving and thriving as a company, however, is in how strategic and intelligent your procurement process is.

Intelligent procurement, or the strategic process by which companies manage their vendor-related spend, is key for companies that are looking to succeed, particularly in a macro environment defined by uncertainty.

As companies look to an unpredictable future, they should prioritize the implementation of intelligent procurement, which helps them cut costs, reduce inefficiencies, and mitigate risk.

What is procurement?

Procurement is the process a company follows to obtain the supplies and services it needs to run its business.

There are two main types of procurement: direct and indirect. Together, these account for most of the purchases made within the company. Effective direct and indirect procurement requires a strategic process and transparent oversight of organizational spend.

What are the types of procurement?

Direct procurement: Direct procurement (also known as direct spend or direct cost) is, according to GEP, “the process of obtaining raw materials, resources, goods and services that are utilized in the core operations of a business.” If you run an ice cream shop, for example, the cost of ice cream and cones would be considered direct procurement. Companies optimize direct procurement by strategically sourcing the most reliable and cost-effective vendors, automating purchases of frequently used items, and buying in bulk to achieve the lowest possible unit price.

Indirect procurement: According to SutiSoft, indirect procurement involves “the expenses incurred for materials, services and maintenance required to operate [your] business.” At that same ice cream shop, the cost of freezers, air conditioning, and email marketing software would be considered indirect procurement. According to McKinsey, “most companies do not have mechanisms to monitor indirect categories and reflect their performance on financial statements.” Without the ability to identify exactly where employees and departments are spending money, companies cannot hope to control and curtail that spend. Thus, effective indirect procurement processes require organization-wide spend visibility for procurement teams.

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What procurement isn’t

Procurement is often used interchangeably with “sourcing” or “purchasing,” but it shouldn’t be. Each is a distinct component of the overall procurement process. Both sourcing and purchasing are most effective when implemented as part of a holistic intelligent procurement process.

Procurement vs. sourcing

Sourcing is one component of procurement. It refers to the process of selecting a supplier or vendor. Identifying an item or service to meet a business need, culling a list of vendors, and comparing prices across vendors are all part of the sourcing process. The ultimate goal of sourcing is to minimize purchasing costs so the business can achieve its ultimate goal: maximizing ROI.

Sourcing is most effective when combined with intelligent procurement, which eliminates repeat purchases across departments, centralizes sourcing tasks, and automatically compares costs across vendors. Strategic sourcing, which allows companies to identify cost-saving opportunities and mitigate risk, is a key element of intelligent procurement. Order.co’s software helps companies source strategically.

Procurement vs. purchasing

Purchasing is another component of procurement and refers to the distinct act of buying goods and services for your business. It does not refer to a formal process or policy as procurement does. Purchasing can add costs and inefficiencies to the business when conducted independently of a strategic procurement plan. Impulsive purchasing by various employees who have not conducted appropriate cost comparisons or due diligence can lead to cash leaks, data security breaches, and even business-continuity disruptions.

Like sourcing, purchasing is most effective—and most controlled—when combined with intelligent procurement. Intelligent procurement tools like Order.co streamline haphazard purchasing, add controls on employee spending, and improve the purchasing experience for all parties. By implementing Order.co’s single catalog and cart for all its purchasing, for example, BLANKSPACES was able to achieve 93% faster ordering and ensure perfect spend compliance.

Procurement = sourcing + purchasing

At its core, procurement is the combination of sourcing and purchasing. It is, according to Thomasnet.com, an “all-encompassing strategic array of processes that includes both purchasing and sourcing.” The development of a strategic procurement process implements safeguards—like strategic sourcing and controlled spend—that protect against some of the risks inherent to sourcing or purchasing alone.

Effective procurement doesn’t need to be complicated. It’s essentially the combination of a few important steps:

1. Evaluating spend across the business
2. Identifying opportunities for cost-savings
3. Creating policies and controls around future purchasing
4. Establishing a system for approvals
5. Implementing a vendor selection-policy

Companies that complete these necessary steps are on their way to developing an intelligent approach to procurement. Businesses that utilize intelligent procurement optimize sourcing and purchasing, mitigate risk, and cut unnecessary costs.

What is intelligent procurement?

Intelligent procurement is the process by which companies manage all aspects of their vendor-related spend in one central digital place so they can gain a holistic view of that spend. Companies that implement intelligent procurement gain better insight into and control over their spend.

Digital transformation has accelerated the rise of intelligent procurement by leveraging software and automation to reduce costs and risks with minimal human oversight. Intelligent procurement platforms like Order.co connect businesses to thousands of vendors via one centralized platform, implement rules and restrictions to reduce rogue spending, streamline invoice management, automate ordering, and more.

Intelligent procurement protects against supply-chain risk and empowers companies to become more sustainable.

Transparent, holistic insight into total spend makes procurement easier. Procurement departments that know where and how the organization spends money can more easily cut costs, make decisions, and identify potential problem areas. The ultimate result of better control over organizational spend? Greater efficiency, lower costs, and reduced risk.

To their detriment, most companies do not apply an intelligent, dedicated strategy to their procurement process. Most companies handle spend in silos, which creates confusion, inefficiency, and unneeded expense for the organization.

Why is intelligent procurement so important?

The main benefit of intelligent procurement is to save companies money. This, however, is far from the only upside of an intelligent procurement process. When applied strategically, intelligent procurement also protects against supply-chain risk and empowers companies to become more sustainable.

Intelligent procurement helps companies save money

By definition, procurement is a massive cost center: it is the hub of corporate expenditure. But managing spend more intelligently has multiple benefits. Companies that implement intelligent procurement can improve their bottom line.

Moreover, intelligent procurement helps protect companies from macro trends and events that create uncertainty for the business. According to McKinsey, companies with high-performing procurement departments have historically recovered from economic crises more quickly. The companies succeed thanks to their ability to respond to supply-chain disruptions, reduce costs through automation, and make more agile business decisions due to insights gleaned from digital tools.

As procurement leaders at The Future of Customer Engagement and Experience write, unpredictable events happen—the past 10 months exemplify that fact all too well—and businesses should prepare for them: “The solution is not planning for every possible contingency. How could we? Rather, it’s gaining visibility into your systems—increasing efficiency and flexibility—to create resilience.”

Intelligent procurement mitigates supply-chain risk

Supply-chain management is a critical responsibility of the procurement department. Intelligent procurement can ensure business continuity when the supply chain is disrupted.

Supply chains are inherently risky. According to McKinsey, “today’s complex and long supply chains are almost inevitably subject to disruption.” Multiple factors—from trade disputes and natural disasters to human error and shortages caused by events like the COVID-19 pandemic—cause these disruptions. Then, because every supply chain comprises multiple links, a domino effect of trouble (and costly delays) occurs when even one is disrupted.

How intelligent procurement creates an efficient, risk-free supply chain

To minimize risk, companies need a holistic view of their spend and their vendors in order to identify the origin of supplies and make adjustments as needed in the face of disruptions. Intelligent procurement platforms like Order.co provide this transparency, which enables agile action by procurement departments when business continuity is jeopardized.

Intelligent procurement helps protect companies from macro trends and events that create uncertainty for the business.

Moreover, intelligent procurement tools allow procurement teams to immediately identify and cost-compare new or replacement vendors so unexpected hiccups don’t result in exorbitant costs. Order.co’s intelligent procurement solution, for example, connects businesses to thousands of vendors and automatically sources out-of-stock or lost items from comparable sellers with comparable prices, ensuring business continuity even amid disruptions.

Plus, intelligent procurement platforms keep track of deliveries, so companies can easily identify delays and problem-solve more quickly.

Intelligent procurement can lead to sustainable procurement

When you implement intelligent procurement, you’re more likely to reach sustainable procurement, which, as we said in our piece on the topic, ensures all the way down the line that “your suppliers—and your suppliers’ suppliers—are proactively seeking ways to minimize waste and reduce their carbon footprint.”

It’s important to aim for sustainable procurement because, according to IBM research, a full 62% of consumers would be willing to change their shopping habits to support more sustainable businesses. That effectively means that companies cannot afford not to be sustainable. Those companies that pursue short-term savings might find themselves losing revenue when discerning customers and investors take their dollars elsewhere.

Sixty-two percent of consumers would be willing to change their shopping habits to support more sustainable businesses.

Companies can augment their approach to sustainability by taking a long-term view of their procurement efforts. Business leaders tangibly demonstrate their values to key constituents when they source from sustainable companies and institute sustainable practices.

How intelligent procurement can help achieve sustainable procurement

Companies can achieve sustainable procurement by leveraging procurement tools to identify and cost-compare sustainable vendors. An intelligent procurement system, which gives companies holistic insight into their spend, reveals which vendors are sustainable and allows companies to track that information in one central place, so they can more readily source and purchase from such vendors going forward.

Sustainable procurement is an excellent example of the necessary teamwork between intelligent procurement tools and the intelligent humans who compose an effective procurement department. Individual employees can leverage the benefits of intelligent procurement platforms to make needed department-wide policy decisions that bolster a company’s reputation, generating value that transcends simple dollars and cents.

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How to achieve intelligent procurement

There are several components of an intelligent procurement process. To achieve it, procurement leaders must do the following:

Deploy an effective procurement strategy and process

Intelligent procurement requires strategic planning. Leaders need to devise an effective procurement strategy — a plan for purchasing business supplies that achieves two core objectives: risk reduction and cost-efficiency. Then, they must implement a repeatable procurement process.

Why is an effective procurement strategy and process important?

Procurement is inherently risky. Procurement departments necessarily rely on third parties over which they have little control. Without an effective procurement strategy, procurement departments find themselves constantly putting out small fires: recurring purchases made by an employee who has since left the company, for example, or duplicate purchases made by members of different departments. They may find themselves navigating relationships with unreliable, noncompliant, or cost-ineffective vendors. They may be constantly policing maverick spend among employees. And, inevitably, they will devote more of their own team members’ time to handling inefficient manual processes.

A defined strategy and process help mitigate these risks. Moreover, an effective strategy helps the department run more smoothly by keeping information organized, simplifying invoicing, and creating a transparent spend management environment. Perhaps most importantly, an effective procurement strategy helps build a lean operating model that decreases wasteful ad hoc spend.

How to craft an effective procurement strategy

Procurement departments need to first identify all sources of spending within the organization. Spend management software tools like Order.co can help companies organize their spending sources in one central place, so they can easily identify and analyze spend across departments.

Procurement departments can more easily predict future costs and identify opportunities to reduce them once they’ve identified sources of spend within the organization. Order.co’s software lets teams automatically compare prices across vendors, so they can guarantee they’re getting the best value for each product and service they purchase. They can also implement policies that control maverick spending by employees and grant the procurement department greater control over the organization’s total spend.

Without an effective procurement strategy, procurement departments find themselves constantly putting out small fires.

Companies can devise a strategy that safeguards against unknown expenses by gaining a comprehensive understanding of the organization’s costs and identifying potential risks that could increase them. Effective procurement departments work closely with finance teams to allocate budgets to various departments while making sure to include a cushion that protects against unknown future expenses.

Today’s best procurement strategies incorporate technology, which increases efficiency by minimizing human busywork (and associated human error) and reduces costs. Automation improves procurement strategies in multiple ways: by easily comparing costs across vendors, bundling orders, organizing information, and reducing time spent on purchasing, among other benefits.

Leverage procurement technology and procurement software

Technology is perhaps the single most important contributing factor to an intelligent procurement department. Procurement technology and software drive efficiency by automating processes and providing holistic insight to spend across the organization.

Why use procurement technology and software?

Historically, procurement requires a lot of time and manpower. The work of sourcing, reviewing and approving purchases, managing vendor relationships, and keeping track of invoices is both necessary and repetitive. When conducted manually, these tasks monopolize employees’ time and introduce more opportunities for human error.

Procurement technology automates much of the unwieldy and inefficient manual work that claims so much of employees’ time. Moreover, implementing technology reduces risk by eliminating human error.

Ultimately, companies that leverage procurement technology and software can reduce their overall spend. Technology automatically compares vendor costs, identifies instances of duplicate or off-budget spending, and offers detailed analytics that allow companies to evaluate their spend in real-time. According to a BCG study, companies that use digital procurement tools can decrease their annual expenditures by an average of 5% to 10%.

Technology is perhaps the single most important contributing factor to an intelligent procurement department.

The rapid pace of technological innovation has yielded a bevy of tools that procurement teams can add to their arsenals. Today’s companies face an unprecedented need to manage their spend and maintain control over an increasingly distributed workforce. Technology and software can help.

Procurement departments that automate elements of the procurement process can reallocate their employees’ time to higher-value initiatives that help protect the business from risk. Truly intelligent procurement combines technology’s speed and scale with humans’ instincts and knowledge to yield a process that’s efficient, cost-effective, and risk-reductive.

How to implement the right procurement technology and software

To choose the best tools for the business, procurement teams must first identify their overarching procurement challenges. Common obstacles include the following:

1. Too much or not enough time spent on sourcing
2. A fragmented, inefficient purchasing process
3. Management of multiple vendors
4. Confronting and reducing maverick spend
5. Vendor errors that risk disruption of business continuity

Once they’ve identified their main challenge or challenges, teams can more easily research and select the technology needed to solve those problems.

Most teams will face more than one challenge. Rather than purchase multiple tools and cobble them together in a fragmented way, procurement departments can rely on Order.co to confront each of their concerns. Among industry-leading solutions, only Order.co’s platform can automate and improve every element of the procurement process, from strategic sourcing and vendor API integrations to purchasing and invoice reconciliation.

Companies that have decided to purchase procurement technology need to feel empowered to implement the tool(s) in a way that maximizes ROI. Even the best procurement technology would be ineffective if it could not integrate with a company’s existing tech stack.

Before deciding to purchase any procurement software, procurement departments should first consult the IT team to ensure API compatibility, then confirm company data-related vendor guidelines with the compliance team. Once they’re assured that their preferred tool can integrate seamlessly with the company’s API and that it will not violate data security policies, procurement teams should prepare to ask the right questions of vendor sales teams. To help in this endeavor, we’ve created this Decision Matrix, which helps procurement teams quantify their choices and make a data-driven decision when selecting procurement technology.

Intelligent procurement is key now and in the future

Effective procurement is anything but simple in modern companies. For one thing, 81% of non-executive employees can influence purchasing decisions, according to Think With Google. Additionally, oversight of increasingly distributed teams has become difficult, and unprecedented macroeconomic uncertainty threatens business continuity in new and unexpected ways.

The result, at most companies, is a siloed procurement process. Purchasing is fragmented and haphazard across the organization, which steadily increases unnecessary costs and exposes the business to needless risk.

81% of nonexecutive employees can influence purchasing decisions

It doesn’t have to be this way. Procurement can be a tool businesses deploy to help them become leaner, more efficient, and more risk-proof. Forward-looking companies can use procurement to protect their organizations and bolster their bottom lines.

To get there, companies need intelligent procurement. They need the tools and technology that streamline systems, offer organization-wide oversight, and automate historically inefficient procurement tasks. Companies that implement intelligent procurement can cut costs, increase efficiencies, reduce risk, and operate more sustainably. Order.co can help.

Procurement is a vital component of healthy, efficient, and cost-effective organizations. Companies that take a thoughtful, strategic approach to procurement will be more likely to succeed—both now and in the future.

Making money is the primary goal of any company—but earning is only half the battle. The other half is reducing expenditures that eat revenue. While overhead spending of up to 35% of annual revenue may be considered normal, this percentage is only relevant in relation to net profit. If you’re only looking at 5% profit after all is said and done, you need to rethink your spending strategy. 

One of the first areas to look? Identify the inefficiencies in your process. No matter how much money your teams bring in, you can’t outrun a process that’s creating cash leaks.

Download the free ebook: How Automation Can Solve Finance Teams’ Biggest Challenges

Accounts payable (AP) is one of the best areas to start improvements. Traditional AP departments limp along with expensive challenges such as invoice exceptions, data entry errors, ineffective fraud prevention, lost cash, inefficient data storage, and slow processing.

Companies are turning to automated accounts payable procedures to eliminate redundancies and improve organizational efficiency. As of 2019, the AP automation market was worth $1.9 billion—and at a compound annual growth rate (CAGR) of 11%, the sector is projected to reach a valuation of $3.1 billion by 2024.

Demand for controlled user access, which helps reduce payment-related fraud, is one of the primary catalysts for this growth. However, the sector faces challenges such as a lack of awareness of AP process automation and digital literacy skills. As digital literacy and awareness of AP automation increase, the growth will only continue.

In this article, we will look at some key aspects of the AP process:

• How the traditional accounts payable process works 
• What an automated accounts payable process looks like
• The benefits of accounts payable automation

What is the accounts payable process?

Business operations are based on the flow of expenditure and revenue within a company. Accounts payable procedures manage the expenditure and purchasing side of things. Their primary function is to ensure company expenses are paid. 

The AP process involves capturing data on invoices for all invoice formats (digital and paper), ensuring invoices are coded with the correct accounts and costs, matching the invoices to purchase orders, and processing the payments.

The manual nature of the traditional accounts payment approach increases the risk of human errors, redundancies, and time wasted. With inefficient processes, the procure-to-pay (P2P) cycle can take up to three months. 

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The consequences of inefficient accounts payable 

Disorganization in the accounts payable process can lead to many negative business impacts:

• Fines and late charges
• Vendor relationship challenges
• Employee burnout and turnover
• Supply chain and distribution delays
• Manufacturing and shipping disruptions
• Credit and funding issues
• Cash flow fluctuations

There are also other challenges with manual accounts payable processes:

• Expense reporting and tracking
• Susceptibility to risk and third-party fraud
• Increased spending on AP team wages
• Lack of data visibility
• Communication delays 
• Payment exceptions

What does an automated AP process do?

An accounts payable team is responsible for collecting invoices, confirming three-way matching, and conveying payment. Due to the number of stakeholders involved, cycle times for purchasing and payment are usually long and riddled with challenges.

An automated accounts payable process eliminates the bottlenecks. Through automation, your accounts payable department benefits from increased efficiency and accuracy, cost savings, and reduced exception rates. 

7 Major benefits of automating your AP process

Change can be hard, but it’s necessary. In a volatile economic landscape, enhancing efficiency in your accounts payable procedure plays a crucial role in your potential growth. 

Here are seven key areas where AP automation improves the process:

1. Time savings

Time is money, yet nearly two-thirds of companies are throwing away AP budgets with manual processes. Automated processes make it possible to do more repetitive tasks with fewer AP staff hours. Many tasks can be converted into touchless processes through automation:

• Scanning vendor invoice headers and line-item data using optical character recognition (OCR)
• Routing purchases orders and payables through predetermined business processes
• Handling three-way matching with no human involvement

2. Streamlined invoice processing

Approximately 3.6% of all invoices entered manually have errors or discrepancies. Through automation, your purchasing department can set internal controls that make its AP processes streamlined and accurate, requiring minimal oversight. This increased efficiency comes with several key benefits:

• Virtually no human errors
• Ease of budgeting, sending and receiving reports, and auditing and preparing financial statements
• Reduced risk of overpaid, miscoded, duplicate, or late payments
• Automatic exceptions flagging for invoice approval, review, and reconciliation

3. Greater operational control

With the traditional AP process, it’s easy to lose track of invoices due to miscoded documents or misplaced paperwork. With such limited operational control, business owners end up paying late fees for missing or delayed invoice payments.

Accounts payable software solutions eliminate these challenges in a few ways:

Automation: Creating automated workflows for accounts payable procedures eliminates invoice exception risks. Since everything takes place in the system, losing invoices becomes a thing of the past. The platform handles invoices in the order your team uploads them. The time saved through automation can instead be directed toward other activities that increase organizational efficiency.

Exception handling: With the process improvement that comes with automation, resolving errors in vendor payments is easy and fast. If there is a problem with a particular invoice, the system will automatically flag and reroute it to the appropriate person immediately.

Risk avoidance: Fraud is one of the primary risks of manual payment processes. Identifying fraudulent invoices is an elusive task, as is rectifying them once an incident occurs. A manual system makes it difficult to conduct thorough audits. In an automated accounting system, all the necessary invoice data is in one place. Unverified or suspect payments are easier to identify and investigate.

4. Discounts on early payments

Delays in the accounts payable approval process lead to supplier fines. Conversely, timely payments result in discounts. While 42% of respondents to a recent study cited early payment discounts as a top priority, achieving this objective with a manual process is nearly impossible. 

An automated AP process streamlines invoice processing, allowing you to take full advantage of early payment discounts.

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5. Integration solutions

Operational efficiency is improved when your procurement function integrates with your larger tech stack. Through integration, accounting can share data with other vital systems such as financial planning and analysis (FP&A) tools, enterprise resource planning (ERP) systems, and other internal databases.

6. Increased productivity

Talent plays a significant role in the success of a company. Organizations look beyond credentials to pursue innovative personnel with leadership qualities that can help steer the business forward.

In building a modern procurement team, creating an environment that maximizes each member’s potential is essential. AP automation solutions remove redundant processes so team members can focus on core business functions to increase revenue.

7. Improved vendor relationships

Delays in the processing and payment cycle lead to difficulties with supplier relationships. An automated accounts payable process improves supplier relationships in several ways:

• Helping you adhere to payment schedules and supplier payment terms
• Enabling invoicing through email, electronic delivery, or paper
• Automating renewals and enabling lifecycle evaluations

Next steps to automating your accounts payable process

An automated AP process benefits you and your suppliers. The AP process is fast and accurate when teams use automated accounting software, saving time and avoiding potential losses from fraud or duplicate payments. For your suppliers, efficiency eliminates delays for accounts receivable. Automation ensures strong, long-term relationships with your most important suppliers.

To learn more about using best-in-class accounts payable automation software to increase operational efficiency, download our Operational Efficiency Handbook.

Automation and digital administration of the procurement process is advancing quickly. As technology advances, it is easier for businesses to see real-time pricing data and, as a result, gain more control over their spend management. 

In fact, with the right strategy, your business could automate nearly half of the procurement process tasks currently bogging your team down. To maintain a competitive advantage, your procurement team must be at the forefront of these emerging technologies. 

The potential upsides to automating your source-to-pay process are astonishing. Automation unlocks cost savings while freeing up time for your procurement team to hunt down new sources of value for your business. 

In this article, we will break down key concepts regarding digitizing your source-to-pay process:

• What is the source-to-pay process?
• What are the benefits of source-to-pay automation?
• What are the steps in automating the sourcing-to-pay process?
• How do different technologies improve source to pay? 

What is the source-to-pay process?

The source-to-pay procurement process is the workflow companies use to find suppliers, purchase goods, track procurement metrics, and manage procurement spending. 

The importance of source-to-pay automation cannot be understated. Businesses that neglect budgetary control and spend management risk losing their competitive advantage. The first step is having clear insight into the emerging technologies that assist with all facets of procurement, such as supply chain management, sourcing, and contract management.

How is source to pay (S2P) different from procure to pay (P2P)?

The source-to-pay process differs in scope from procure to pay (also called purchase-to-pay). While P2P deals only with the purchase and payment of goods or services, S2P encompasses the entire procurement process, from vendor selection to payment remittance. 

A P2P platform helps you input existing vendor information to manage the purchase and payment workflow. S2P further helps you discover and evaluate new potential vendors to work with.

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Benefits of the S2P process

Establishing a source-to-pay process improves the efficiency and cost-effectiveness of your procurement function. Using automation to enhance the process further extends its value. 

Reduced cycle times: A streamlined process makes everything from approvals to payments go faster. This reduces the time to close on new purchases and takes the workload for closing deals off the plate of busy accounts payable professionals. 

Better cash efficiency: Source-to-pay automation allows companies to find the best deals for the items they need and process purchases with less human intervention. This results in better direct and indirect savings and higher cash efficiency. 

Fewer errors: Manual source-to-pay processes require significant work from your AP teams. When teams shoulder the burden of manual processing, errors naturally follow. Automating your source-to-pay process drastically reduces the exception rate in your purchases and invoice processing. 

Steps in the source-to-pay process

A streamlined source-to-pay process follows a predictable pattern. It begins with an intake form from your stakeholder and proceeds through sourcing, selection, order, delivery, and payment. Ideally, the process works as follows:

1. Intake: A stakeholder with a specific need fills out an intake form and routes the purchase requisition for approval. The intake form should include all the necessary information to make the purchase. Alternatively, a stakeholder whose organization uses a source-to-pay solution selects what they need from a curated catalog or list of vendors within the platform and goes from there.

2. Approval: Procurement researches potential suppliers and creates a shortlist. Once a supplier is selected and price and terms are negotiated, procurement transmits a purchase order for fulfillment. This process is handled within a platform, so the approval process begins with an understanding that the purchase will occur with an approved vendor.

3. Fulfillment: The supplier delivers the goods, and procurement (or accounting) reconciles the order against the purchase order and invoice. This is called three-way matching. A platform can handle most of this process automatically while your teams work on higher-value tasks.

4. Payment and reconciliation: If everything matches, accounting pays the invoice. In a platform, payment may be automated directly through the system. After payment, Finance tracks the data and conducts spend management to ensure supplier performance and competitive agreements. 

Refining your source-to-pay process

With so many complex new processes to consider, it may seem daunting to determine where to start automating your procurement process. Remember, the only thing you can do is start from where you are. 

If you’re currently using multiple systems scattered across departmental silos, start there. Work toward tearing down the walls of the silos and coordinating each team’s efforts. Identify each step in your procurement process and estimate the value of closing the gaps you find. Your business will see a notable boost in productivity when placing and receiving orders and processing payments.

Projects of this magnitude require champions. Find a leader to serve as the torch-bearer for the project. Your champion project leader should identify your processes’ main pain points and bottlenecks. Then you can experiment with solutions for those areas. 

Identifying the best, cheapest, and simplest solutions from the beginning goes a long way. It helps you avoid stumbling into pitfalls or burdening your IT team with a massively complex solution, only to find that it might not achieve the expected results. 

Ebook

The Complete Guide to Procurement Management KPIs

Dive deep into how your team can benefit from tracking procurement KPIs, the 15 most important KPIs to track, and a detailed worksheet to help you calculate which KPIs suit you!

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How machine learning enables the source to pay process

Applications for machine learning in the procurement process handle complex rules. Machine learning requires some recognizable pattern to achieve peak performance at uncovering sourcing opportunities. For example, machine learning tools can handle spend analysis areas that traditionally require human judgment, such as assigning transactions to spend categories.

Automating this process leads to greater accuracy and wiser decision-making, thanks to real-time spend analysis information. Machine learning helps your business with supplier management by enabling you to examine in-depth information about supplier relationships. In turn, you significantly boost your strategic sourcing strategy.

Cognitive agents

Cognitive agents are synonymous with artificial intelligence in many ways. Drawing from complex master data, cognitive agents pull the information necessary to plan your sourcing strategy or determine the best course of action.

The best example of using cognitive agents is the process chatbots use. The chatbot system searches a database of the most common questions to provide predetermined answers.

In the procurement process, cognitive agents may soon be beneficial for more complex tasks, such as comparing cost, quality, and more with a database of similar products. Cognitive agents and machine learning tools handle highly complex areas, such as developing spend category strategies and identifying the most beneficial supplier relationships. 

Robotic process automation (RPA)

This is a relatively new term in the procurement playing field. In contrast to machine learning, Robotic process automation (RPA) automates simple, repetitive tasks. Using bots, RPA accesses software the same way a human would. This eliminates the need to delve into software’s underlying code and saves a lot of time and resources. Robotic Process Automation easily handles many source-to-pay processes, such as invoice processing, ERP, and RFx.

Smart workflow

Traditionally, siloed departmental tasks contribute to wasted time and increased effort to be consolidated. Smart workflows link tasks performed by different people using different machines to streamline processes, such as risk management, and organize them around journeys. For example, tasks can be routed between the procurement and finance teams to simplify contract management. 

Instead of making incremental gains by applying optimization efforts in each department silo, smart workflow processes produce tangible benefits for the entire organization. They begin closing the black holes caused by lag time and lack of coordination between tasks. As a result, businesses experience better forecasting, spend management, and cost savings. 

Natural language processing (NLP)

Natural language processing is technology that allows computers to understand and respond to human speech in text or voice format. (If you’ve ever asked Siri or Google “Where is the nearest gas station?”, you’ve used NLP.) 

Natural language processing, especially when combined with RPA, streamlines the procurement process by organizing unstructured data found in free-form text. It searches through suppliers’ information for specific terms and matches the order requirements, such as pricing, to groups of suppliers.

After automatically sending out requests for bids, a member of your team receives the bids and makes the final determination. NLP is most useful as a connection between human input and structured data that machines use. 

Automation is an untapped source of value

The value generated by automating your source-to-pay process is shown in:

• Reducing the amount of work
• Reducing cycle times
• Improving compliance
• Creating significant cost savings
• Having better supplier management

By finding the right procurement software that mimics its human equivalent, your company streamlines business processes and contract management with ease. 

Work smarter, not harder, to maintain your competitive advantage. Letting the machines do the repetitive tasks is definitely smarter. It frees up your team to focus on strategy. Plus, there’s an added benefit to procurement automation that is sometimes overlooked: employee happiness.

How Order.co supported ZeroCater’s source-to-pay automation

An employee calling a task “the bane of their existence” is your first clue that there’s an issue. If your accounts payable team is frequently asking what website employees are purchasing from, it’s time to investigate solutions to compliance issues seriously. 

This question and sentiment alerted ZeroCater that they had serious issues within their procurement process. Lack of clarity in their approvals process led to rogue spend and inaccurate spend analysis—ultimately negatively impacting their cash flow. 

After implementing Order.co, ZeroCater was able to:

• Significantly reduce their cycle times
• Streamline their payment process
• Get the entire team on board with a more efficient process 

As a result, ZeroCater cut their invoices from around 200 per month down to three or four—a whopping 50x reduction. This freed their procurement and finance teams to identify new sources for creating additional value. 

Order.co focuses on providing the best user experience with a single platform that streamlines every level of your procurement process. We provide an end-to-end purchasing and payment platform with intuitive functionality and solid integrations to help your procurement team’s onboarding go smoothly. 
Request a demo of Order.co to see how procurement software centralizes and streamlines your source-to-pay process.