07 Apr Purchase to pay plumbing – the critical touch points between finance and procurement – Part 1
Have you ever installed the plumbing in a large office? Neither have I. And if I did I would hold out much hope of it not springing a leak or two. It’s a complicated business and you would think twice about having your corporate plumbing installed by anyone other than a trained professional. It’s a shame that most organisation don’t apply the same rigour when it comes to installing P2P processes.
It’s a useful analogy. Installing only half of the purchase to pay process is like installing half of the plumbing. Turn the water on and it will be like a monsoon. Both ends of P2P need to be joined up – but knowing which purchasing component joins with which payment component isn’t always obvious.
Purchase to pay plumbing manual – part 1
Knowing your end of the purchase to pay process is all well and good but, if you are at the purchasing end for example, which part of the payment end do you need to be joined up to? Here’s a few of the purchase to pay touch points that should help get the P2P plumbing in place.
1. Receipting process and GRNI
The process of receipting is an important step in the purchasing process. If it’s not done properly, AP may pay the supplier late. If it’s done to early you can end up with accounting anomalies. GRNI (goods received not invoiced) creates a regular distraction for finance. Accruals have to be created and GRNI has to be managed every accounting period. Ironically, it is often the buyers who rarely appreciate the importance of GRNI, who are in a position to control it.
From a purchasing perspective the management of the purchasing process doesn’t end with receipt. Go a few steps further and understand the impact that the receipting process might have on GRNI. And finance should collaborate with their purchasing colleagues to understand better the impact that their process have and, if necessary, help to enhance and further improve purchasing practice.
2. Supplier Data Management and AP Automation
Humans are good at knowing the discrepancies that you see in supplier master data and the application of a few common sense checks such as a comparison of office addresses will tell you that an invoice from Acme Group is likely to be related to the purchase order that was sent to Acme Inc. But just try automating this.
One of the biggest challenges to successful AP automation is data quality and if the supplier master data is managed within the purchasing function is is critical that accounts payable join up fully with purchasing to ensure that supplier master data is clean and consistent and to ensure that any AP automation project is successful.
3. Product Categorization and Accounting Conventions
Products and services categorization is not just important for spend analysis and category management. It can also be critical for some finance management tasks. And it’s not trivial. Without getting too deep into the accounting detail, if the classification of goods and services does not take into regards the accounting conventions and practices in your organisation, important accounting tasks can be made difficult or impossible. Knock-on effects can be extremely serious including reporting the wrong tax liability – potentially, a very expensive error.
Work closely with finance to capture their business requirements when it comes to designing the categorization for purchasing.