Purchase to Pay Process

Ready for the new year, Patrick Harbin has published and amazing 50 ways to reduce costs in accounts payable.  They say about new year’s resolutions that you should ensure they are achievable so for those that think 50 major change management  programs in one year - that’s 1 per week – is a little too much, you might want to consider the first 5 because we think the first 5 are the best 5.

We hear all the time about big companies paying suppliers late, abusing their power to take advantage of the good will of smaller companies by delaying payment for as long as possible in order to enrich themselves at the expense of weaker, more vulnerable companies. Well, it’s not true. Deliberate late payment by large companies in all but a few exceptional cases doesn't go on. Systematic management of cash flow by withholding payments is a myth. The reality is, surprisingly, much worse!

I have sometimes described purchase to pay as sitting at the least glamorous end of the business spectrum. At one end is the sex, drug and rock 'n' roll world of PR, marketing and sales - life at the coal face where business really happens - and then at the other end there's the back office functions like purchasing, finance, internal audit. And if we take a closer look at the back office, sitting quietly right at the wrong end of the glamour spectrum is accounts payable. A colleague once described accounts payable as "the spinsters department". Jason Busch doesn't spare his vitriol in his criticism of AP suggesting that "most companies would likely be better off blowing up their AP function". To be fair he does suggest a more constructive fate for AP by describing how they might transform into a high value add supply chain finance operation - something I would strongly endorse. But for the time being, I want to defend AP. Why? Because much of the criticism is unfair and especially when it comes from purchasing.

There are few that would disagree that Ariba sits firmly amongst the best in class procurement vendors. Its heritage goes back to the pioneering days of e-procurement and it has continued to innovate successfully ever since, diversifying its portfolio of solutions across the P2P spectrum. But while its procurement credentials are impeccable - the first P - how credible is Ariba at addressing the second P at the payment end of the spectrum?

Holistic P2P delivers synergy but you need to take a step back to see how.  By embracing the whole of the end to end process across finance, procurement and the supplier’s organisation, benefits can be unlocked that remain hidden when these elements operate in isolation. Apparently unconnected projects within the purchase to pay spectrum can be joined together to deliver better results. The following examples illustrate the point.

The correct steps to take to implement holistic P2P very much depend on the starting point. An immature organisation may have to work hard simple to get to the starting line. Others may already have reached a high level of maturity, but whatever the starting point, it is worth going back to basics and beginning with a high level audit assessing your level of P2P maturity.