Imagine walking into the office on a Monday morning, and your desk is buried in invoices.
You spend the next week manually uploading each one. You barely have time for a coffee break because the piles never actually go away. You keep at it because that’s your job, and that’s how your company manages invoices. But you know that next week, next month, your desk will look exactly the same.
This is reality for thousands of AP professionals. Half of the respondents to a recent IOFM survey say they are working longer hours to keep up with the rising volume of invoices. According to the data, things won’t let up anytime soon. The same report showed that invoice volume increased 75% in Q1 of 2022 alone.
Download the free tool: Invoice Tracking Template
This Increase in volume and associated work are leading many accounts payable (AP) professionals to burn out, with one in four of these overworked individuals considering leaving the field as a result. Additionally, one in five AP professionals is approaching retirement age. In total, nearly 50% of the professionals surveyed are at risk of leaving the industry.
Growing a company is hard enough. Proper invoice management is a vital practice for your company and your valuable employees. Before we hop into how to fix invoice management at your company, let’s first get into what exactly invoice management is—or at least what it’s supposed to be.
What is invoice management?
Simply put, invoice management is a process by which a company receives, organizes, validates, pays, and records supplier invoices, in that order.
Seems easy, right? It is, but believe it or not, proper invoice management isn’t as common as one might think. If you’re not careful, poor invoice management can plague your company’s growth and bottom line. In truth, no industry is immune to this issue.
What is the manual invoice process?
The core problem with invoice management is not the invoices themselves. Companies have to purchase products—that’s a given. For many companies, even in today’s world, the problem with invoices is the manual process by which they’re managed.
Each invoice flowing into the company follows a process. They must be:
- Entered into the system
- Processed and coded
- Matched against purchase requisitions and purchase orders
- Approved and submitted for payment
- Tracked and reconciled at month-end
Ask anyone in finance— manual invoice management is a lot of work. Not only that, if you don’t keep the hundreds of paper invoices organized, like Donnie Brasco says, “Forget about it!”
The vicious cycle of poor invoice management
There is a vicious cycle when it comes to manual invoice management—especially as it relates to new and growing companies.
Growing companies buy a lot of products, especially those engaged in expanding locations. With those growth-necessitated purchases come corresponding invoices. The invoices are entered manually—given they’re not misplaced beforehand—to be approved.
After approval, payments are often made via paper checks through the mail. The payments are reconciled and recorded in a spreadsheet. The wealth of information contained in the purchasing process is ignored.
A new month of purchasing begins, and the cycle repeats itself.
The time and effort it takes AP teams and finance departments to facilitate improper invoice management takes away from the effort they could invest in strengthening their department and helping spur company growth.
Without sufficient effort focused on helping the growth of the company, it’s virtually impossible to gain traction. Nonetheless, the outdated manual invoice management process stays the same, and the cycle continues.
Top 5 impacts of manual invoice management
Manual processing can present a host of negative impacts for organizations. These are the five most damaging:
1. Poor visibility: Manual invoice processing relies on outdated data collection methods such as spreadsheets. These manual organization methods offer no options to dynamically search through or contextualize data. This lack of visibility makes it harder to find issues as they arise, and it also robs decision makers of access to valuable information for future planning and analysis.
2. Frequent errors: Everyone makes mistakes, and overworked AP staff are bound to make their fair share. Manual entry creates an average exception rate of up to 23%. As many as one out of every five invoices has an error that either requires research and remedy or never gets detected at all. Those exceptions can add up to considerable lost revenue and time.
3. Slower processing: AP clerks can only type so fast. A skilled clerk can process an average of 5 invoices per hour. For companies generating thousands of invoices per month, the headcount required to process everything in a timely manner is prohibitive. Additionally, the manual accounts payable process usually goes hand in hand with paper checks, which leaves suppliers waiting on snail mail to receive payments. Missing or delayed mail may generate late fees.
4. Higher processing costs: It’s expensive to perform manual data entry. Its expenses come from a variety of places:
- Increased labor cost
- Late payment fees
- Invoice exception costs
5. No scalability: The most pervasive problem with manual processing is the lack of scalability. With only so many hours in the day and so many people available to process, manual entry means the problem gets worse over time. For growth-minded companies, scalable systems are the key to success. That’s hard to accomplish if your AP team is constantly falling further behind.
AP automation can keep up with your company no matter how fast you scale.
What does good invoice management look like?
Manual invoicing can seriously weigh down the finance department. Fortunately, there’s a better way. Automated invoice processing software converts invoice management from a days-long, high-touch process to an instantaneous, touchless event. It can streamline every step of invoice batching, matching, and processing to reconcile thousands of invoices per hour. Here’s how it works:
Batching/receipt: Invoices flow into the organization from one of several channels (mail, email, or e-invoicing). Optical character recognition (OCR) scanners batch and digitize paper invoices, and invoice data is integrated into the system. Email and electronic billing go into the system automatically for validation and processing.
Reconciliation and matching: Formerly tedious processes such as invoice reconciliation and three-way matching between the purchase order, invoice, and purchase requisition happen automatically. These processes occur within the system at the time of invoice processing, eliminating the need for manual checking and re-checking of vendor payments against spreadsheets.
Approval: Invoice approval is automatically routed through approval workflows so any relevant stakeholders (for instance, finance or procurement) can sign off. The entire process happens within the system, eliminating the need for back-and-forth communication that slows down the process.
Payment: Using an integrated electronic payment method linked directly to accounting systems, the platform approves the invoice and issues an electronic payment directly to the supplier. This enables cost-saving early payment discounts.
Reporting and archiving: All centralized data is available for real-time reporting and analysis purposes. AP or other stakeholders have the ability to dynamically search for information by time period, vendor, category, department, or other search criteria.
Invoice management software can help you achieve all this and more. The best platforms can also help consolidate billing and payment into a single, automated event, saving AP hundreds of hours of work in researching and paying vendors. Instead, a single click can pay them all.
Real-life examples of effective invoice management
Let’s get some real-life examples of how consolidated invoicing and proper invoice management drastically increase the productivity of finance teams and foster the exponential growth of companies.
Cutting down on the number of invoices your company has to process saves your team and company time and money. With consolidated invoices, companies can go from hundreds or thousands of invoices to just a few—or even a single invoice—every month.
Elliot Physical Therapy gets better process efficiency
Elliott Physical Therapy discovered the time and money they could save by using consolidated invoices and efficient invoice management. Finance Director Caroline Dodero calls it a “huge time saver” that “allows [Elliott PT] to focus on higher-level projects” rather than wasting numerous hours every week organizing hundreds of invoices. They are now able to pay 168 separate invoices with one click.
High Level Health consolidates the invoice process
Neil Hesse, Staff Accountant at High Level Health, was also familiar with the struggle of trying to sift through, organize, and pay hundreds of invoices a month. “I was digging through 400 pages of invoices and credit card receipts,” says Neil. “And when we didn’t have receipts, we didn’t know what to do.”
The more invoices you have to pay, the more difficult it can be to organize them. And disorganization can lead to losing track of invoices—or losing them altogether.
Now, with one weekly invoice, Neil and his team not only have a better, clearer understanding of exactly what they’re purchasing, but their invoice management gives the team more time to focus on scaling their high-growth cannabis company instead of chasing paper.
Clinton Management gets payments under control
Getting a call from a vendor who says your payment is late is just awkward. Clinton Management, a property management company based out of New York, suffered this exact problem. They were trying to manage hundreds of separate invoices, which led to backlogs and overdue payments. By consolidating their invoices and keeping track of their payments, they became the gold standard for both property and invoice management.
“Our vendors aren’t calling to ask where their payments are anymore,” explains Purchasing Manager Nadia Nizam. When you consolidate all your invoices into one, paper stacks go away, and you can see exactly whom you owe and ensure they are paid on time.
Free yourself from invoice management with Order.co
Order.co consolidates your invoices and automates many of the manual processes that bog down invoice management. The platform centralizes invoice management and brings you a competitive advantage, free from the chaos of keeping track of invoices. Never again will you ask, “Where did I put that invoice?” or “Did I pay that vendor yet?”
Establishing a good invoice management process is an essential part of scaling your business—without it, you’ll be stuck in the vicious cycle of invoice overload, with no clear way out. For companies looking to tighten up their invoice management system (and let their finance teams sleep better at night), that’s where we come in.
Order.co’s invoice automation features help some of the world’s fastest-growing companies streamline their invoicing and payment processes. Reduce manual entry, increase productivity, improve invoice management, and consolidate payments, all within one robust automation software tool.
Schedule a demo with one of our team members if you’d like to see exactly what Order.co can do for your business.
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B2C business success brings its own headaches.
Here is the simple reason why — B2C businesses succeed by selling current and new products and services to existing customers, and then, they sell to those customers more often. B2C businesses will also acquire new customers, and then repeat the whole process over again.
Having more customer orders means ordering more supplies from current and new vendors, and that is what causes headaches for many businesses. COVID-19 has made it worse. More people are working remotely, teams are introducing new monitoring and checking procedures, and flaws are coming to light. Managing the increased orders and deliveries leads to workload problems because much of it is not standardized and the work is done manually. Your team must then process everything through the accounting system.
The entire accounts payable (AP) process has been in place forever. It is often cumbersome, flawed, inefficient, and leads to dislocations in supplier relationships. In this article, we will discuss:
- The accounts payable system, its shortcomings, and how to fix them.
- How fixing problems is not just about making some improvements.
- Specific and measurable benefits to changing the way AP accounting is done and how the AP department works.
Accounts Payable shortfalls
Staying on top of your accounts payable accounting system is essential. Non-standardized and inaccurate purchase order processing, inaccurate bookkeeping, and imperfect account balances all create problems for the accounts payable department and the C-suite (once the company's general ledger and balance sheet are produced), as well as for suppliers. Late, missed, or short payments caused by those inaccuracies can damage vendor relationships because payment terms are not met. It also generates inaccurate financial statements for the FD and CFO, which negatively affects cash flow and, usually, adds burdens to AP accounting team members' already heavy workload. This then impacts productive workflow and encourages more errors.
In the age of COVID-19, B2C business employees are already under stress from worry, staff absences, potential illness, home-schooling demands, family emotions, and so on. Those problems and performance shortfalls escalate.
When they are working in isolation or as part of a skeleton crew, errors can increase. This wastes time and money and strains vendor relationships.
AP accounting success
Managing AP accounting well has the opposite effect:
- Vendor relationships improve.
- Staff workload goes down.
- Morale stays high.
- Costs go down.
- Liquidity improves.
- You get ahead of competitors who are not on top of everything.
- Your profits rise.
In B2C accounts payable accounting, the ordering process tends to operate differently across each outlet, studio, store, or restaurant. In addition, if all truth lies in the balance sheet, you sow the seeds in the accounts receivable and accounts payable accounting functions.
The AP accounting cycle
Accounts payable is based on the expenditure and purchasing cycle. This, in turn, is part of the overall procurement to payment process (P2P). The steps include:
1. Customers place orders
These may be regular orders for in-stock items and services or included in regular delivery schedules. Consumer orders may be poorly explained (especially if done over the phone or by text) or may need to be corrected. Also, what could have been a bulk order often comes in parts. Servicing those orders requires that direct materials are available to meet known and expected customer demand. It also requires other items such as equipment, cleaning supplies, and office supplies.
2. You place orders with vendors
To meet display, production, customer use, or factoring demands, managers and other individuals in each outlet place purchase orders directly with vendors. Separate ordering systems develop, even if the vendor supplies other outlets Quite often, so do separate order- and delivery-monitoring systems. Vendors then deliver, often to separate sites or to one site for subsequent internal distribution to separate departments within the site.
3. Received deliveries trigger internal controls
Deliveries trigger internal controls, which result in delivery documentation receipts or vouchers. These are checked for accuracy against the original purchase order paperwork. The paperwork is then either passed for processing, or the vendor is contacted to check details or correct any errors.
Once delivery details are approved, vendor invoices are received and checked against delivery records. They are then passed to the AP accounting team for processing. Again, if discrepancies are noticed, then internal checks are made and the vendor is contacted to solve errors.
4. Documents receive approval and enter the system
After documents receive approval, AP accounting team members input invoices to the vendors' accounts as ready for payment. A single invoice for multiple deliveries, or situations in which items in a single delivery are allocated to different sites or functions, will then be analyzed and costs allocated accordingly to generate management accounts. In many B2C businesses, there are additional internal analyses and controls, all of which add to the pressure people feel.
5. Payments are scheduled and made
Unpaid invoices form part of current liabilities. So payment schedules must be prepared and approved. The purchase ledger balance includes trade payables and forms part of the liability account (which includes utilities, bank interest, etc.). Payments are then made according to the internal protocols and current liquidity.
How different B2C businesses handle AP accounting
Accounts payable accounting processes are detailed, complex, and time-consuming. Some businesses automate the entire cycle, while others process some of it manually and integrate those parts with automated financial accounting practices later in the cycle. Managing individual orders, monitoring each vendor's shipments and deliveries, handling paper invoices, and paying vendors by check is also how many B2C businesses operate now. It’s also how they see their future.
The inefficiencies systemic in accounts payable have grown because of COVID-19 lockdowns, social distancing, and basic human stress. There is a better way, and the pandemic can be the match that lights the fire of change.
The fire of change for AP accounting
Successful businesses approach AP accounting as an integral part of the entire process, from ordering through to the paying cycle. Integrating and automating delivers real results. It begins with ordering via a centralized and controlled system. It then moves on to monitoring logistics, managing physical deliveries, and handling delivery and purchase records. Then, accounting for those purchases continues through to payment scheduling and to final payment.
This complete-cycle system generates a level of efficiency and accuracy that a traditional ordering and accounting system cannot. This comprehensive approach is, as we have said, called "Procurement-to-Pay" or P2P.
The result of introducing a full P2P system is that the time spent processing all those records goes down — and accuracy goes up. Costs go down, internal efficiencies rise, vendor relationships improve, and the net result is greater profitability. You also gain the real ability to increase your business's marketplace footprint without all the on-the-ground stress too many people are currently living under.
Customers may still place orders in their old, inefficient ways. But the time saved on P2P and AP accounting can improve the customer experience by introducing methods to raise their game. More time can go into assessing customer profitability so you can let the costly and unprofitable ones go. This enables systems to be put in place to coach the profitable customers to place their orders in ways that benefit them, your business, and your staff.
The practical benefits of fully automated and integrated AP accounting
It is easy to talk about increased efficiency and lower costs, but where do they show themselves? Consider these two different B2C examples, one in Japan and one in the United States.
MINISO Is a retail business with 33 locations selling beauty supplies, household items, and fashion accessories. By introducing a consolidated vendor order and invoicing system, the process became streamlined, managers became more conscious of expenditure, and their hands-on involvement increased. Apart from obvious efficiencies, everyone saw better control, more staff involvement, and a feeling of empowerment. This boosted morale and created a real sense of camaraderie.
[solidcore] is a health and wellness business. It originally had 25 locations. By automating its AP accounting process, it then expanded to 50 locations. The company saved approximately 356 labor hours a month by not having to manage and reconcile separate purchase orders placed independently by studio managers operating their own accounts with common suppliers.
These two examples show that — by centralizing purchase orders and logistics management, and by automating accounts payable — real savings are there for the taking. It is much easier for individual staff members to contact a central hub online to place orders, check progress, and monitor processing using appropriate accounting software than for them all to do it separately and with no comprehensive standards to work to. Having all of that managed and controlled for them doesn't just relieve pressure. It also reduces the stresses associated with operating in lockdown isolation and eases the feeling of "it is all on my shoulders."
Delivering the solutions
Accounts payable accounting has always been bound up in complex inefficiencies. The way COVID-19 impacted businesses and team members made those inefficiencies worse. It was easier for many businesses to hunker down and hope.
There is an old adage in business, "Winners make it happen. Losers let it happen." Making AP accounting happen in ways that deliver worthwhile savings, greater efficiencies, greater accuracy, and better vendor relationships make financial planning easier and more certain. It also helps raise team member morale. Your marketplace footprint grows, and competitors are left behind.
In summary, when you link your AP accounting with Order.co's purchase process — coupled with integrated payments and consolidated billing — you will:
- Simplify your purchase order and AP accounting process.
- Lose the traditional AP processes problems.
- Shorten the whole accounts payable cycle.
- Increase control over orders, supplies, the company's cash, payments, and reconciliation processes.
- Lower operating costs and improve vendor relationships.
- Boost team member morale.
Order.co's platform excels in maximizing the benefits of effective order processing and accounts payable systems. Request a free demo to learn more about how your business can remove AP processing problems and get the benefits. We look forward to working with you.
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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.
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:
- Evaluating spend across the business
- Identifying opportunities for cost-savings
- Creating policies and controls around future purchasing
- Establishing a system for approvals
- 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.
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 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:
- Too much or not enough time spent on sourcing
- A fragmented, inefficient purchasing process
- Management of multiple vendors
- Confronting and reducing maverick spend
- 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.
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Accounts payable (AP) and notes payable (NP) are often used interchangeably, but in reality, they operate differently and serve distinct purposes within your financial strategy.
To properly manage either payable category, granular spend visibility is essential. Without it, the benefit of strategic financing can be diminished or even become a vector for financial risk.
We will define and contrast accounts payable and notes payable and illustrate how financing strategies offer maximum growth opportunities when paired with a dynamic procurement management tool. First, let’s get a clearer understanding of the differences between AP and NP.
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Accounts payable and notes payable defined
Accounts payable and notes payable are liabilities recorded as journal entries in a general ledger (GL) and on the company’s balance sheet.
Accounts payable refers to short-term liability accounts incurred for purchases with vendors and suppliers on credit. Notes payable are long-term liability accounts incurred through financing by banks and other lending institutions. Many business owners and managers assume accounts payable and notes payable are interchangeable terms, but they are not.
Let’s look more closely at the differences:
Accounts payable (AP)
- Short-term debt resulting from purchasing goods and services. These credit purchases are due for repayment within a year or less. (In practice, most suppliers seek Net 30 repayment terms.)
- Purchases do not incur interest within the repayment period and discounts may be offered for early payment.
- These short-term loans are non-collateralized. As long as invoices are paid promptly, suppliers will continue to fulfill new orders.
Notes payable (NP)
- Longer-term obligations to vendors or lending institutions. They have specific terms and maturity periods of either one year or less (short-term) or more than one year (long-term).
- Backed by written promises to repay (called promissory notes) that outline payment terms. Notes include the principal amount issued by the lender, interest payable, payment interval, and security or collateral terms. These elements are encapsulated into a formal lending agreement between the borrower and lender.
- Notes payable are customarily funded by banks, but they may also be paid to other financial institutions.
- Specific due date and repayment schedule. Notes payable are recorded and reported differently from accounts payable.
What are the benefits of long-term notes payable? (LTNP)
Leveraging financing can be an effective way of getting needed supplies and creating growth in the short term for companies that can generate revenue and adhere to repayment terms.
A long-term notes payable agreement helps businesses access needed capital attached to longer repayment terms (12–30 months).
- LNTP agreements are repaid with a set interest rate (like short-term notes payable).
- Long-term notes can be non-collateralized loans used for purchasing supplies or equipment. This gives businesses the funding they need without relinquishing any control over how those funds are used and without needing pre-approval from investors.
- Long-term notes payable provide the capital to invest in future growth, product development, and innovation, freeing up current assets for current operations.
- The LTNP is a low-risk financing option. It increases a company’s debt capacity and, therefore, displays deeper financial stability.
- Interest due can be deducted from the current year’s tax liability, lowering the overall cost of capital financing.
LTNP funding allows businesses to plan beyond day-to-day operations and fund innovation and growth. Using LTNP credit, you improve everyday control while building products and features to increase future revenue.
Pairing a financing strategy with a procure-to-pay solution
Leveraging the power of financing within your business allows you to grow faster, bring products to market within shorter timelines, and get needed supplies and equipment into service without waiting to raise revenue or constraining cash flow.
To make the best use of this strategy, you need strong visibility into procurement activities, and a granular understanding of your current liabilities. Without a process of strict budgetary control, the advantages you gain in securing long-term financing may be lost in poor cash management—you risk overspending on short-term liabilities and finding yourself unable to make payment obligations on your loan agreement when the bills come due.
Strong procure-to-pay (P2P) management helps companies keep a rein on spending and creates an audit trail and a business case for every purchase. Procurement software can build these guardrails into the ordering process so your stakeholders can get what they need without overspending.
You’ll get four basic areas of improvement from a good P2P process:
- Better visibility to optimize spend
- Reduced or eliminated maverick spending
- Streamlined supply chain management to avoid production delays
- Integrated invoice approval and payments to avoid fees and enable discounts
When you procure needed supplies using financing and ensure an effective budgetary process through P2P, you immediately see higher cash flow stability and lower costs. These conditions improve working capital to support growth further.
How does procure-to-pay (P2P) work?
Many businesses operate across several sites and via separate departments that replicate similar activities. It is common for the same goods and services to be needed by these separate departments and sites. Without an established P2P process, each location may end up generating its own supply chain, which often leads to frequent errors.
P2P systematizes every step of the procurement process:
- Requisitioning goods and services
- Selecting and evaluating suppliers
- Receiving and reconciling shipments
- Invoice approval and supplier payments
Goods and services can be requisitioned from the same suppliers across all departments, cleaning up your supply chain and greatly reducing errors.
10 Steps in the procure-to-pay (P2P) process
When each purchase follows a procurement plan with the following steps, it establishes accountability and ensures your business operations are transparent and efficient:
- Identify goods and services to be ordered.
- Raise a purchase requisition.
- Review and approve the requisition.
- Select the appropriate supplier based on known pricing, quality, and delivery standards.
- If there are no existing suppliers, create a list of potential vendors and issue requests for bids.
- Integrate requisitions to create a complete purchase order with specific order and delivery details for each site or department.
- Issue the purchase order to the supplier.
- Receive and approve deliveries.
- Check and approve supplier invoices with three-way matching.
- Pay supplier at the business’s discretion.
- Evaluate supplier performance.
While these steps are possible using a manual process, the volume of accounts and invoices in most companies requires automation to fully realize savings and control.
Using technology to power P2P success
When you understand the difference between accounts payable and notes payable, it is easy to keep them separate and use that difference to your advantage, meeting immediate capital needs and improving value creation.
Here are some of the top benefits of pairing strategic financing with P2P solutions:
Better finances: Good financing strategies with a solid procurement management system ensures your long-term plans are supported with smart short-term spending controls.
More stability: This comprehensive process keeps cash flow smooth and efficient.
Transparency: Automation and centralized data help accounts payable teams retain total visibility through every stage, from requisition to final payment.
Higher accountability: This standard of budgetary control ensures every purchase meets operational standards, adheres to corporate compliance, and stays within budget.
Tighter supply chain: Improved efficiency benefits both the company and its suppliers. P2P makes it easier for suppliers to meet delivery deadlines. This reduces their costs and allows you to renegotiate better prices and terms.
Better liquidity: Your working capital is less strained and more available for other immediate needs. It can also be allocated to future budget plans, including settling promissory notes.
By knowing the differences between notes payable and accounts payable—and learning to leverage each correctly— you can improve your cash flow and grow more effectively. Pair this with a robust P2P platform, and you’ll be set to optimize your finance function and further accelerate success. To learn more about leveraging financing and putting procure-to-pay to work in your procurement practice, watch our on-demand Finance and Automation webinar.
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Are you paying six figures for your procurement solution system and still using emails and spreadsheets to conduct purchases? You’re not alone.
Many businesses invest in a procure-to-pay solution, only to be disappointed when procurement inefficiencies like high spend and time delays remain unresolved.
Failure to automate and streamline purchase and supply chain systems affects spend management. Manual and siloed systems make it difficult to track expenditures across the company. These systems are prone to errors, inconsistencies, and duplications that inflate spending. Companies using such systems also lose opportunities to negotiate on bulk orders, foregoing direct savings.
While a procure-to-pay solution has many benefits, a company must choose the right system based on its needs, objectives, and stakeholders. This article highlights the main pitfalls companies fall into when investing in a procure-to-pay solution. It covers what to do to avoid these problems and ensure the successful implementation of the right procurement system.
In this article, we’ll dive into:
- Why a procure-to-pay solution can fail
- The best procure-to-pay solutions of 2022
- How to best implement P2P software
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Why do procure-to-pay solutions fail?
The most common culprits in a failing procure-to-pay process are lack of visibility and lack of process. Establishing a repeatable review, approval, and documentation process allows organizations to capture vital information on each purchase and integrate that data into the accounting and reporting process.
No management validation
Like any other important organizational decision, purchase-to-pay solution systems must have the approval of the company management. Unfortunately, many companies do not prioritize supply chain processes.
As such, related technology upgrades can encounter opposition from the top. Failure to convince senior managers of the need to change supplier management systems results in a lack of validation and cooperation when implementing new processes. Instead, they stick to old systems.
Poor onboarding processes
The managers, employees, and vendors who use P2P systems determine their success or failure. Without proper training, sensitization, and support, your colleagues can sabotage a new P2P system.
Additionally, a Tungsten report shows it’s normal for employees and suppliers to resist change—especially if new solutions are introduced without sufficient preparation.
Poor user interfaces
Many employees and suppliers fail to use their procure-to-pay solution because of complicated software, poor system interfaces, and bad user experience. Most of the creators of SaaS programs tend to be technical professionals concerned with the complexities of different systems. If left to create a P2P system on their own, such professionals are less likely to consider the technical and knowledge gaps of the intended users.
Lack of automation and integrated systems
In many large organizations, different departments and external suppliers have independent operating systems and tools in place. Various departments manage requisition, sourcing, procurement, and accounts payable processes. Furthermore, departments might work with different suppliers that use their own independent systems.
Many departments, vendors, and suppliers insist on sticking to their established processes in scenarios such as when introducing a new ERP system. The widespread use of paper invoices and manual systems further exacerbates this.
Unless all the departments and vendors involved streamline their processes and use a unified automated system, enforcing a single P2P solution is practically impossible. Non-integrated systems ruin the essence of purchase-to-pay solutions because they create room for confusion, delays, and inflated purchases.
Spend visibility and reporting challenges
The unintegrated and manual systems discussed above make tracking spending difficult and prevent access to real-time data. Such outdated systems and processes mean that reports must be obtained from diverse sources and compiled later.
Many procurement systems lack built-in reporting functionality and spend visibility. This limits employees’ use of the system and forces them to generate reports manually. Such systems make it difficult to get accurate, real-time data or conduct analyses.
Companies also sometimes avoid procure-to -pay software that has an automated system and produces auto-generated reports because of pricing factors.
Top procure-to-pay tools of 2022
If you’re looking for the right solution to automate your procurement process, check out these top-rated options. To learn more about each, read our full review of today's top 7 procure-to-pay tools.
Order.co
Order.co combines simple, intuitive design with powerful back-end features to create a platform everyone in your organization will value. It offers purchasing through a streamlined catalog with dynamic spend permissions and guidelines. Order.co is great for companies of any stage or size, with capabilities to support multiple locations using centralized, automated functionality.
PRM360
PRM360 gives buyers using the platform for e-procurement a visible, streamlined process. It features real-time reporting on bid processes and automated payment solutions for quick, spend-optimized procurement. The platform is best for mid-market and enterprise customers.
Coupa
Coupa is one of the largest solutions for enterprise customers looking to automate the procurement process. The platform offers a guided buying process with vendor management, inventory management, and other features. Coupa is a component of the Coupa digital management suite for end-to-end enterprise resource planning (ERP).
Zycus
Enterprise users choose Zycus because of its compliant, guided buying options. The tool uses an AI engine to enable and automate the procurement process. It offers robust integrations that allow users to extend the platform for controlling and monitoring spend and risk.
JAGGAER
Billed as the world’s largest independent spend management tool, JAEGGER serves clients across all market segments with procurement management and processing. The tool integrates with other top-quartile business management tools to enable automated P2P.
The keys to the successful implementation of procure-to-pay software
Despite the challenges some companies face when buying and implementing their procure-to-pay solution, the ability of these systems to reduce maverick spending and save time cannot be ignored.
In order to select and properly implement the right P2P system for your company, bear the following things in mind:
Start with a needs analysis
A SaaS or SAP solution will only work if it addresses your company’s needs. Knowing your current purchasing process and P2P process helps determine whether you need a sourcing system, purchasing tools, vendor management system, or a full P2P system. It also reveals budgetary issues, gaps in business processes, supplier relationships, strategic sourcing, and spend management.
Knowing the current problems and the proposed procurement system’s potential solutions gives you more leverage when bringing your management and team on board. Moreover, a needs analysis enables you to identify the best individuals for implementing your new procurement solution and helping the team adjust.
Move to a pilot phase and continuous evaluation
Based on your needs analysis, choose a user-friendly system that fits the capacities of your organization, employees, and vendors. Then conduct a pilot phase to test whether your software solution is feasible and compatible with your transaction needs and lifecycle. Once implemented, you will also need to evaluate your P2P solution periodically to ensure that you are reaping the intended results and conducting data-backed optimization.
Continue with stakeholder education and involvement
Apart from conducting a pilot phase, also educate and involve your employees and the vendors or suppliers who will be using your P2P solution. Involving all the relevant teams helps you get important user feedback and suggestions for the system.
Training and providing necessary information through videos, handbooks, and FAQs reduces challenges for colleagues, vendors, and suppliers as they adapt to the new system. This empowers them to adopt and implement your P2P management solutions quickly.
Choose full automation and integration of purchase requisitions
If you really want to reduce inefficiencies through a procure-to-pay suite, opt for an automated and integrated solution. Access to data will make it easier for your employees to avail reports upon request. Ensuring every department in your company and external team uses the same procure-to-pay software will fast-track its implementation and improve your procurement processes.
Automation should include a mobile approach to allow all relevant stakeholders to access the system anywhere they have an internet connection. This reduces delays in decision-making and approval of requisitions. In addition, your automated P2P solution provider should advise on the best way to migrate and store your data when transitioning to the new system. Given the sensitivity of data, ensure migration and storage are secure.
When done correctly, automation and integration enhance transparency and cut out bureaucratic delays. It facilitates timely payments and deliveries while giving employees time to focus on other important duties.
Appoint a P2P system manager
A good procurement system is only as efficient as those managing it.
Unless you appoint specific people to be accountable for properly implementing your P2P system, you will end up with poor implementation and blame games amongst employees and different departments.
If your organization has no supply chain department, allocate this task to the finance team or outsource management services, preferably from your procure-to-pay solution service provider. Alternatively, hire an in-house team or form a department tasked with handling all your e-procurement matters, depending on your needs.
Plan compliance and policy reforms
Regardless of how well you prepare your employees, vendors, and suppliers, you will still encounter some form of resistance during the implementation of your new procure-to-pay solutions. Some suppliers and vendors might insist on using their own system, while your employees may struggle to adapt to the new way of doing things.
This calls for compliance and policy reforms compelling everyone to adhere to your new contract management and procurement process. If anyone comes with a non-purchase order invoice, refer them to the new invoicing and three-way compliance requirements.
If you compromise on this, you risk failure and the possibility that your P2P system might never be used. The best way to introduce these reforms is to communicate them to all the relevant stakeholders and employees at least three months before they come into action.
Start looking for the spend management system that fits your needs
Choosing a needs-based procure-to-pay solution and involving both your team and external stakeholders ensures the success of your new procurement management system.
Order.co is a user-friendly, intelligent spend management system that works for your entire organization by:
- Giving your finance and operations teams full visibility into tracing and managing all their purchasing needs
- Providing other departments with easy traceability of their spending
- Allowing users to make purchases and pay for goods on one platform
The time to automate your process and close cash gaps is now. Begin by choosing the right software to enable your organization. Check out our guide, Choose the Right Procurement Technology, to start your search.
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