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magazine
Despite five years of recession-led
improvements in financial management,
organisations are still failing to impose
adequate control over expenditure.
According to research by Proactis,
over two-thirds of purchasing happens
before an order is raised and 38% of
companies estimate that in excess of
60% of inbound invoices are invisible
to the organisation prior to receipt by
Accounts Payable (AP).
The vast majority of organisations
claim to have some form of procurement
process. Yet in reality, few have considered
issues such as supplier on-boarding or
rationalisation of suppliers to achieve
best prices.
Typically, processes amount to nothing
more than some form of purchase order
generation, often put in place only because
growing numbers of suppliers refuse to
deliver products or services without a PO
number. There is no central visibility of
purchase orders, commitments or accruals;
and no assessment of the impact of the
purchase against available budget.
AP only becomes aware of a purchase
when an invoice arrives and even then
the invoice may not be registered in the
finance system, as processes are so poor,
there is a fear that if invoices are entered
into the system they will be paid before
approval. Instead, an invoice is sent to the
relevant department for approval, where
it is sometimes lost, forgotten or simply
buried under a mound of other ‘more
critical’ tasks.
Financial Implication
Is it any wonder a British Chambers of
Commerce (BCC) survey of more than
5,000 businesses found that 94% of firms
have been paid late, with one in four
reporting that over 40% of their payments
are received late. The problem is not just
one of organisations delaying payment to
maximise cash flow but of endemic poor
processes.
Today, even if a basic purchase order
process is in place, it can be hard to
manage. Organisations struggle to keep
track of orders, whether they have been
approved – and by whom – and whether
or not the goods or services have been
received.With invoices lost or buried,
suppliers will often re-submit and with no
systematic approach to matching invoice
value to order value and actual deliverable,
organisations risk overspend/duplicate
spend.
Too much time is wasted chasing paper;
supplier relationships are compromised;
and, critically, with limited visibility of
expenditure against budget, organisations
have no view of corporate exposure and
limited cash flow control.
Of course many organisations feel
too small to justify the adoption of an
official procurement process, especially
service companies with few suppliers.
Many are also justifiably concerned about
business disruption at a time when every
organisation is operating with minimal
spare capacity.
However, in the current economic
climate effective cash control is essential:
organisations need to understand purchase
commitments in real time. No business
can justify this lack of visibility into
expenditure or this lack of control of spend
against budget. Furthermore, in a financial
climate that offers discounted rates to
businesses that make early payments, poor
procurement processes are constraining
opportunities to cut costs.
Achieving visibility
eProcurement can transform the purchase
process by delivering centralised visibility
of the entire procurement cycle, with
electronic recording of documents, from
purchase orders to invoices and delivery
notes, as well as actions and approvals; and
the automatic posting of commitments,
accruals and invoices.
Organisations can get up-and-running
with eProcurement relatively quickly by
using a templated, best practice model
that delivers 90% of requirements from
day one.With a proven end-to-end process
encompassing requisition, purchase order
creation, authorisation, three-way matching
Procurement
Uncovering the hidden
costs of procurement
In a volatile economy, organisations continue to jeopardise business success
by failing to monitor purchasing commitments. In this article, GaryWaylett
explains how eProcurement can help businesses gain visibility of committed
expenditure as a purchase occurs, rather than after the event.
(order, receipt, invoice) and automatic
generation of accounting entries, a business
will gain immediate visibility of soft
commitments, accruals and actuals.
Critically, the system must be intuitive
and non-intrusive. A web-based solution
integrated with the email system that can
be accessed from a PDA or tablet is key.
eProcurement does involve some cultural
change, so making the process simple
to use, with one click requisition and
approval and the ability to click through for
additional detail if required, is essential to
ensure staff buy-in.
Imposing Control
A templated approach transforms the
speed of implementation and delivers a far
quicker Return on Investment (ROI).
A procurement system will save time
at every step of the process, from supplier
on-boarding to streamlined and efficient
payment processes, while financial savings
will vary according to the size and type
of organisation involved. Those with high
volumes of expenditure to approve will
gain greatest benefit from streamlined
processes and a reduction in the time-
consuming paper chase; those with high
levels of expenditure will gain significant
value from consolidating suppliers and
negotiating better pricing.
All organisations will benefit
immediately from improved visibility at
an early stage. Instant insight into the
impact on budgets of a requisition request
will enable organisations to impose
control over corporate expenditure; while
good approval processes and automatic
matching of invoice to purchase order
and delivery note will flag invoicing errors
early and eliminate the risk of duplicate
invoicing.
Crucially, improved insight into
purchasing enables a business to
understand both current and rolling
commitments, such as insurance,
equipment leases, rent and monthly
subscriptions to Software as a Service
providers. By transforming visibility of
the purchase process organisations will
be far better placed to manage cash flow
effectively and make improvements to
procurement policies that deliver year-on-
year savings.
www.eclgrp.com
...one in
four report
that over
40% of their
payments are
received late.
GaryWaylett is CEO of Eclipse Group, an IT business solutions
provider and consultancy specialising in the provision and
implementation of market leading business management
systems. Its core solutions enable organisations to improve
efficiency, streamline processes and reduce costs across the key
business areas of spend control and e-procurement; financial
management and reporting; and document management and
imaging. Solutions can be deployed as standalone systems or be
fully integrated with a customer’s existing applications.