Purchasing Insight

Purchase to Pay, Purchasing & Procurement Process, Electronic Invoicing

Browsing Posts tagged P2P

You think purchase to pay is a back office function? e-invoicing is a technical innovation? AP automation an incremental improvement to financial supply chain management? And you wonder why nothing ever gets achieved.

P2P is as boring as you make it. The reality is though, that purchase to pay, positioned properly, can deliver commercial benefits on a scale that would astound most executives. continue reading…

Purchasing is a complex set of interconnected and dependent people, processes and technology. – market knowledge; benchmarking information; purchase to pay and accounting systems and processes and last but by no means least – data. Data – your procurement organization’s Achilles heal. continue reading…

One of the leading financial and business advisers, Grant Thornton Sweden, has deployed an invoice processing solution from enterprise purchase-to-pay specialist Palette as the backbone of its internal and hosted electronic invoice management (EIM) service.

Grant Thornton Sweden is one of the leading financial and business advisers, providing services in Sweden and internationally. Currently processing around 30,000 invoices per month for over 300 customers both in Sweden and internationally, Grant Thornton’s EIM service improves the efficiency of customers’ accounts payable, as well as optimising the company’s own internal invoice management system. continue reading…

Very few definitions are definitive – if you know what I mean. Purchase to Pay, (if you prefer, Procure to Pay or P2P – they’re synonymous), is one of those.

The “official” definition of Purchase to Pay according to the Chartered Institute of Purchasing and Supply goes like this: “A seamless process enabled by technology designed to speed up the process from point of order to payment.” This isn’t a great definition. It is unhelpful to use the word seamless. Whether it’s a good process or not, the purchase to pay process is there and even when best practice is applied, there are plenty of “seams”. Enabled by technology? Not necessarily – although technology can play an important part. And finally designed to speed up the process from point of order to point of payment – this is just plain wrong.

Purchase to Pay, P2P and Dynamic DiscountingPurchase to Pay is all about helping to optimize the processes associated with purchasing and recognising that the process does not end at the purchase order but extends to include accounts payable and payment processes. It goes further. The suppliers’ sales order processes, strategies and technologies are involved as are the buying organization’s treasury management and accounting functions.

Purchase to Pay is not about speeding processes up. (Ask any CFO if he’s like to start paying all suppliers quicker.) Purchase to Pay is about the optimization of processes introducing control and efficiency as well as reducing risk. It is about ensuring that sourcing savings are delivered by providing purchasing processes that ensure compliance to contract.

The CIPS definition of P2P is not only less than useful – it is misleading and undermines the value that Purchase to Pay can deliver.

Purchase to Pay or P2P (Procure to Pay if you prefer) is a misnomer in most organizations. In reality, P2P is owned and managed either in the procurement organization – in which case it should more accurately be called P2 – or it’s owned in the finance organization in which case 2P is a better term. Rarely – very rarely –  is P2P implemented fully,  all the way across the organization. But without an effective partnership between finance and procurement,  P2P doesn’t work. And depending on where the ownership lies there are very different views on what purchase to pay is.

The Finance Centric View

When it’s is owned in finance, P2P is seen as a means of imposing control. The business needs to ensure that proper processes are in place to ensure that P.O.s are properly authorized, that proper segregation of duties are in place, that capex and opex are properly differentiated and, above all, that there are no anomalies that will make the job of accounting difficult.

The Procurement Centric View

The purpose of P2P is the same when it is managed in the procurement organization however the emphasis is different. There is more focus on building and maintaining processes that reduce cost and ensure that the goods and services are delivered to the business accurately and in timely fashion. Accuracy of catalog data and order functionality are higher on the agenda and  the importance of prompt payment to maintain good supplier relationships is seen as more important than management of DPO.

Scope and Breadth of Purchase to Pay

Purchase to Pay, P2P and Dynamic DiscountingFor procurement and finance to partner effectively it’s important to understand the extent to which P2P reaches both from a process point of view and an organizational point of view.

There is a distinction between procurement and purchasing. P2P is about effective process, not about sourcing and negotiation but don’t put procurement out of scope.  The terms of engagement between the buyer and supplier are a key component of the P2P relationship and critical elements of the contract negotiation, such as payment terms, are certainly within scope.

And what of the organizational boundaries? P2P does not start with purchasing and end in payment. It starts within the supplier and their sales order processes and ends with the month end accounting processes including cash flow management.

(There are those that would argue that the term “Purchase to Pay” should be “Procure to Pay” or vice versa but these terms have become confused with ERP module branding and it is now a matter of pure semantics which expression is used.)

The Challenges

Anyone that says its easy has never done it. Identifying a shared agenda at a high level is straightforward but making it happen is another matter all together.

Take GRNI for example. GRNI (Good Received Not Invoiced) is an important number for finance. When it’s a big number that’s a bad thing and when it’s a small number, it’s a good thing. And keeping it low means having good ordering and receipting processes. Explaining the critical importance of GRNI to a buyer is a major challenge. To be frank, the buyer doesn’t care.

Similarly, getting agreement on prompt payment is difficult because purchasing and finance have opposing interests – happy supplier vs good cash flow.

But these challenges have to be overcome. Buyers don’t need to become accountants and the finance community don’t need to become procurement experts but they do both need to sit on the same side of the wall and develop a shared agenda and respect each other’s expertise.

P2P is about partnership. Partnership between buyers and suppliers for sure but more importantly, an internal partnership between finance and procurement.

Purchase to Pay, P2P and Dynamic DiscountingThere’s much talk about dynamic discounting and how it can yield significant returns on investment but dynamic discounting is absolutely not the first step in extracting value out of purchase to pay optimization – it is the final step.

Let’s go back to basics and remember that P2P is not a core function of an organization. Rather, it supports the core functions such as sourcing and procurement, accounts payable and finance. Purchase to pay develops and installs synergy across the physical and financial supply chain and uses technology to support better ways of working to reduce the cost of doing business with suppliers. continue reading…

Purchase to Pay, P2P and Dynamic DiscountingCompanies across the globe are missing out on the opportunity to make huge financial savings by introducing efficiencies in accounts payable. There’s nothing new in that. But it’s not just the opportunity to save cash by using P2P efficiencies that is being missed. Current practices are contributing to significant losses of cash! Money that should be in the balance sheet is hemorrhaging from the company coffers because of human error, data inaccuracy and  and lack of integration between systems and the scale of loss should be cause for concern.

Basware, one of the leaders in Purchase to Pay solutions, has just published the results of some research into AP performance – the results are shocking and every CFO should be well aware of it. Despite the clear opportunities to make significant costs saving through the implementation of P2P process models current practice falls way short of what we might call “Best Practice Purchase to Pay”

Purchase to Pay – The Uncomfortable Truth

Basware talked to Accounts Payable heads in the USA, UK and Europe as well as Australia. There are 2 particularly interesting findings: 1. 30% of companies report missed early payment discounts and 27% incurring penalties for late payment; 2. 39% of companies manually match invoices with POs and only 5% use a Purchase to Pay (P2P) product to perform automated matching.

Is it just me or are these two findings connected in some way? Like cause and effect maybe?

This is a great research report and provides very clear evidence that the implementation of P2P doesn’t just help to provide a more efficient infrastructure. It doesn’t just provide a platform on which highly profitable techniques like dynamic discounting can be launched. It is invaluable tool in controlling leakage of cash.