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Part VIII: Better payment processes pay dividends

Key Takeaways

  • P2P (procure-to-pay) automation can reduce costs, produce efficiency gains, improve contract compliance and provide additional useful data in a timely fashion.
  • Invoice automation is a key component for any successful P2P implementation. It brings considerably greater insight into what has been bought, delivered and is still to be paid for, as well as giving clearer visibility into such things as upcoming deliveries.
  • P2P automation makes it possible to use financial supply chain tools such as dynamic discounting or supply chain finance, so you can optimise working capital and support suppliers.
  • Better payment processes provide suppliers with the information they need to match payments against invoices and increases bank account data security.

 

Streamlining the corporate payment and transactional process can bring manifest boosts to a business in terms of efficiencies and actual savings compared with a more labour-intensive process. More than that, best-in-class procure-to-pay (P2P) processes can help improve contract compliance, reduce error rates and provide additional useful data.

Any successful P2P implementation has to include invoice automation as a critical component. There is growing evidence that this is now being viewed as an essential foundation for procurement organisations that are increasingly expected to be leaner and more efficient. It is not a matter that is dealt with only by treasury or finance.


A survey published last year by Oxford Economics, The Future of Procurement, found that procurement had “undergone dramatic changes” in recent years – and a key part of this shift was down to the desire and need for automation as the function looks to better align itself with the business as a whole.


The Oxford Economics study involved 1,000 respondents, comprising senior procurement executives and daily practitioners. When asked which areas they expected to be completely automated within two years, 70% said invoice management. But it’s not just about what gets automated – it’s also about how. According to Oxford’s research, business networks, the Internet of Things, and other new technologies are changing day-to-day work for practitioners.


Writing for SAP’s magazine The Digitalist, Chris Rauen Sr. Manager, Financial Solutions Marketing, SAP Ariba explains how a “networked” approach connects procure-to-pay processes. “The obvious advantage of having one network for PO and invoice automation is the ability to ‘run simple’,” Rauen reports. “With this approach, you can send a PO to a supplier over the network, and that supplier can simply ‘flip’ that PO into an invoice. Add to that the ability to integrate e-catalogues on the same platform, and you extend the benefit on the front end, ensuring that orders come from preferred suppliers at negotiated prices. All this contributes to a comfort level that promotes touchless, straight-through processing.”


Broken processes

One business that is intent on harnessing better systems to automate its P2P processes is UK-based technology firm e2v. The transformation is being led by head of procurement Jared Griffiths who says that a number of fundamental areas need to be addressed before any project of this nature is undertaken.


“There’s nothing worse than automating a bad process – it just increases the complexity,” Griffiths says. “A lot of the problems we had here were down to the fact that people weren’t utilising the available tools properly. You got an awful lot of input errors because the [cost] categorisation within the system wasn’t clear, for example. If you’re not putting the right data in, then the data you got at the back end is useless.”


And therein lies the great irony of any attempt to automate the payment and transactional process: at the end of the day it’s the people who have to use it who ultimately hold the key to its success. With that in mind, it’s clear that training plays a key role, as Griffiths explains.


“With any of this, if you train people well so that they understand the upstream and the downstream elements and the benefits it can bring them and also the wider business, then you’re going to reap the rewards,” he says.


“The key is to not only get that understanding but also train them and then document that properly so that it’s in a central repository. Then people can keep going to it and keep referring to it over time. The training also needs to be refreshed, so that every six months it’s updated. If you don’t do that then people get into bad habits like taking shortcuts and you end up back at square one.”


The ultimate goal, however, is to significantly reduce the amount of human intervention at the front end of the process. “If it’s done correctly a lot of the transactions can be handled ‘hands-free’,” says Sidney Van de Steene, senior process manager at Belgian manufacturing group Bekaert.


“The person doesn’t have to be involved anymore and that’s the real saving. We have processes in Latin America that are still fully-manual: invoices still come in on paper, they’re then reviewed by someone and then entered into the system one-by-one. This can take a long time and can obviously lead to delays,” says Van de Steene. “It also means that there isn’t the level of visibility we require.” Paper-shuffling provides very little insight into what’s been bought, delivered and is now due to be paid for.

Breaking barriers, better data

With the technology now offered by the likes of SAP Ariba opening up a wealth of opportunities for those companies looking for easy-to-use network portals to automate their entire P2P process, the barriers to adoption that once existed have come tumbling down.


The business case is further strengthened by the improvement in data quality that a transformation project of this nature can bring about. “A P2P process significantly helps businesses to get data in standardised formats,” says Soroosh Saghiri, senior research fellow at the Centre for Strategic Procurement and Supply Chain Management at Cranfield University School of Management.


One benefit is that this makes it easier to match invoices to purchase orders and delivery notes, “thereby short-circuiting lengthy and error-prone manual procedures,” Saghiri says. “It also helps businesses to add more information to the overall process, such as ASNs [advanced shipping notices, which give electronic notification of upcoming deliveries] and order acknowledgements. So it’s not just about more supply chain data, it’s also about better supply chain data,” Saghiri says.


Spelling out these advantages is essential to alter sometimes stubborn mind-sets across the various business functions that can be impacted by such dramatic changes in working. Getting buy-in, not just from the supply base, but also from internal stakeholders is clearly crucial.


“I don’t think the technology is the barrier,” says Saghiri. “I think the barriers tend to come internally from stakeholders who are reluctant to change because they perceive it’s going to be more long-winded and require more effort on their part.”

There is often concern about implementation costs, Saghiri adds: “They don’t understand the offset can be more efficiency internally. It’s very easy to change minds when you can see the benefits that are going to happen for you. You can point to a dramatic drop in email volume, for example, and the gains that this can bring.”


So platform-based automation straddling the entire P2P process would appear to be a far easier sell than some would imagine. It’s not just the company automating the process that can gain tangible results, though – suppliers can also realise the benefits. As well as enjoying a more efficient invoice process, suppliers can also track the progress of their invoice and be confident that it will be paid accurately and on time.

Taking the pain out of payment

Not only is this increasing productivity and improving efficiency on all sides, it also means that the technology available is offering the business an invaluable opportunity to, in a sense, turn a balance sheet liability into an asset. How? At a time when cash is as important as ever, it offers the possibility of using dynamic discounting (DD) and the extension of payment terms alongside the provision of supply chain finance (SCF) – all achieved for the good of the business and helpful to the supplier, as well. But it can’t be done unless the invoice approval processes are very streamlined: it’s simply not possible to put in place early-payment arrangements such as SCF or DD if the buying company isn’t able to approve payment within a few days of receiving the invoice.


Payments are easier with a good P2P system. You can handle payments electronically, without cheques. You can issue remittance notices that allow the supplier to know exactly which invoices are being paid. And you can keep suppliers’ bank account details utterly secure. It’s no longer necessary for suppliers to phone up and say, “Thanks for the £12,457 payment – but which of our 32 outstanding invoices is it for?”


With procurement coming under increasing pressure to maintain cost savings while increasing efficiency, the automation of the P2P process provides a priceless opportunity to do both – as well as providing clear value to suppliers.



 

This article has been written by an experienced journalist, commissioned by Procurement Leaders. It is part of a sponsored editorial product, published in partnership with SAP Ariba. Commissioned by Procurement Leaders.

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