Purchasing Insight

Purchase to Pay, Purchasing & Procurement Process, Electronic Invoicing

Browsing Posts tagged Invoice Processing

Purchase to Pay, P2PThis is the 21st Century.

The secure, ubiquitous global network that is the internet is established as an essential business tool that supports mission critical business processes on an industry wide scale. Messages of all kinds are transmitted between organisations: demand planning information, stock availability, real time commodity pricing, purchase orders, request for quotation and  yes – invoices.

Why in a world where information and communication has become free, would an organisation ever pay 1-2% to send an invoice? That’s what Purchasing Cards do. They send an invoice in return for immediate and assured payment – but the supplier  of goods and services pays a percentage to do that. Electronic Invoicing (eInvoicing) delivers the benefits of purchasing cards in terms of ease of invoice processing without the ongoing costs.
Or does it?

Purchase to Pay (P2P) Relies on a Common Understanding of Format for Invoice Processing

It is true that after the initial investment in implementation that eInvoicing gives a supplier a means to reduce the cost of invoice processing by eliminating paper and giving their customers a value add by allowing them to automatically reconcile invoices by offering them in an electronic format. And it’s the format that is key. The “f” word of eBusiness. Which format should the supplier use? CSV; Excel; Word? 97;2007? OB10 or Ariba? All of the above?

I think you’ll find that all of the above is your only option if you’re a supplier that wants to offer electronic invoicing. Which is not good news for you if you are. You see, you can’t dictate the format of your invoices in the eWorld. Your customers dictate it. And so that small implementation cost that was supposed to give you cost reduction on your invoices becomes many implementation costs and quite soon, your business case becomes like dry sand in your hands – unless of course you select an invoice format that is universally accepted.

Purchasing Cards may be a little overpriced – particularly when interest rates are close to zero – but don’t dismiss them. Whether they use the VISA or MasterCard format or the American Express standard, the transaction format is recognized world wide and has been for decades.

Take advantage of new ways of doing things. Embrace change and modernity – but don’t let anyone persuade you that the new wheel is a good idea.

Purchase to Pay, P2PThe disastrous economic climate means that most organisations are looking at their costs even more closely than normal and it is the so called “discretionary” spend that is coming into a very clear focus. When times are tough and the immediate future is uncertain, it’s right turn off all but essential spend. Marketing budgets will suffer. New hires are simply not going to be taken on. Large IT projects will be postponed. It’s the commercial reality of our time.

But – and this is a large “but” – executives need to be very clear about what exactly is “discretionary” spend.

A well known manufacturing business recently embarked on a programme to identify and create efficiencies in their Purchase to Pay (P2P) processes particularly in their invoice processing. Through a combination of tighter control on process, some sensible rationalisation of supplier base and a bit of IT investment to enable and support the new processes, annual savings of $3 million was identified – approximately 1% of the value of their annual spend or the cost equivalent of 80 staff.

Then times got tough. There was uncertainty about the short term as well as the long term. The pipeline of new work was drying up. It was time to contain costs – especially discretionary spend – including their P2P programme.

Why is this misguided? Here’s why. The P2P programme cost was not the discretionary spend. It was the $3 million of overspend which is discretionary. They shot at the wrong target.

In difficult times when companies need to contain costs, purchasing initiatives, whether they be strategic sourcing programmes, eProcurement implementations or P2P projects are not part of the problem – they are part of the solution.